- Sensational media coverage has overstated the extent of dividend cut resulting from the recently announced plan for AT&T to spin/split off WarnerMedia and merge it with Discovery.
- The "new" AT&T should have a yield of around 5.0% based on recent AT&T and Discovery stock prices, placing it in the ~95th percentile of dividend payers.
- The new Warner-Discovery won't pay a dividend. As some have already pointed out, AT&T shareholders can sell the spun-out company to buy more dividend-paying stock.
- The deal makes a lot of sense in terms of strengthening AT&T's focus on its core business and reducing debt and risk. The deal will also give the media assets a better strategic positioning.
- A 15-25% total return looks highly achievable over the next 1-2 years. Recall that a recent activist investor had a target of $60/share.
For further details see:
AT&T: Post-Deal Yield Of ~5%, Turning A Corner On Bad M&A