AT&T investors have long favored the AT&T dividend for its continuous and regular payments. But recent moves and stock performance have made some investors question the future of the AT&T dividend. AT&T (T) is a major topic in the dividend investing community along with the Disney dividend and XOM dividend. In this article, we will dissect the AT&T business and what we can expect from the T dividend moving forward.
AT&T is a telecommunications and entertainment conglomerate that competes with Verizon and T-Mobile for mobile phone customers, and Netflix and Disney for streaming television subscribers. Despite the COVID-19 pandemic battering its revenue, earnings and share price—and lingering concerns over its massive $153.4 billion debt load—the company has reiterated its commitment to paying 60% of its free cash flow as a dividend to investors.1 2 The current full-year dividend payout is $2.08 per share,3 for an eye-catching 7.17% yield. That’s the highest it has been in more than 20 years.4
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Yield-hungry investors who buy AT&T today are likely reassured by the company’s consistency as a dividend payer. AT&T has boosted its payout every year for 36 years running, solidly affirming its place as a dividend aristocrat.5
Investors may also be drawn to an attractive risk-reward scenario, with the historically high yield potentially providing support from further downside risk in the stock. At $29.14 per share, AT&T is down roughly 25% in 2020, compared with a 3.4% gain for the S&P 500 Index.6 The hope is that shares are done falling, and will recover their pre-pandemic levels as AT&T shakes off the affects of COVID-19.
AT&T Dividend Quick Facts
Previous AT&T dividend payout:
- Last dividend payout per share: $.52
- Last dividend payment date: August 3, 2020
- Last ex-dividend date: July 9, 2020
- Trailing Dividend Yield: 7.1%
Next AT&T dividend payout:
- Est. ex-dividend date: Oct 9, 2020
- Est. dividend payment date: Nov 1, 2020
- Est. dividend payout per share: $.52
AT&T dividend analysis: Business overview
AT&T is organized into three operating segments: Communications, WarnerMedia and Latin America.
The Communications segment is the humdrum part of AT&T’s operations, yet provides the bulk of the company’s revenue. This segment covers mobile phone subscribers, DIRECT TV and other pay television subscribers, along with business customers.
The WarnerMedia segment provides the headlines, glamour and potential growth story. It includes Turner broadcasting properties such as CNN and the Cartoon Network; Warner Bros Entertainment, which produces television programming such as Veronica Mars and movies such as the Christopher Nolan-helmed Tenet; and premium television offering HBO, home to compulsive viewing hits Game of Thrones and Watchmen.
Latin America, by comparison, provides little in the way of revenue or excitement. This business is comprised of two units: Mexico, which offers wireless services, and Vrio, which sells DIRECT TV throughout Latin America and the Caribbean.
MOBILITY. The wireless services business within the Communications segment is the main revenue driver for AT&T, contributing $70.94 billion in operating revenue over the past four quarters, or roughly 40% of the group total.
However, this is a saturated market characterized by anemic growth and fierce competition. Total subscriber numbers have barely budged over the past two years.
At 92.9 million wireless subs,7 AT&T is practically neck-and-neck with Verizon (93.975 million subs8) and T-Mobile, recently merged with Sprint (98.32 million subs9). In an effort to win over consumers, the three operators have laid out billions in capex to upgrade to faster 5G networks, and make various claims about network speeds and millions of square miles covered.
In July 2020, AT&T announced its 5G network was nationwide. T-Mobile claimed to have a 5G network larger than AT&T and Verizon combined. In reality, these investments—while necessary—seem unlikely to significantly shift market share beyond each operator’s incumbent geographic advantages. From 2G to 3G to 4G and now 5G, mobile telephony simply gets faster. If any operator enjoys an advantage, it is not technical (each operator buys roughly identical telecommunications gear from the same group of vendors), but a function of how it deploys capital.
It is for this reason AT&T has made a strategic decision to invest massively in content, betting on synergies to be gained by owning wireless broadband subscribers and the content they consume. (More on this below).
ENTERTAINMENT GROUP. This business is the black sheep within the Communications segment and the company overall. It contains the not-so-bad residential broadband and fiber-to-the-home business. But it also holds DIRECT TV and other pay television businesses. Margins are significantly lower compared with other units within AT&T.
Pay-television in general, and DIRECT TV in particular, has been the albatross within AT&T, shedding millions of subscribers every year.
AT&T acquired DIRECT TV in 2015 in a deal valued at $67.1 billion once debt was included. The purchase made AT&T the largest pay television provider in the U.S., just as consumer preferences were shifting from expensive content bundles to cord cutting. At the time, AT&T said the combo would allow it to integrate video entertainment with mobile and high-speed internet services.10 Needless to say, those synergies were never realised.
Now AT&T is looking to offload the business. In August 2020, the Wall Street Journal reported AT&T hopes to sell a controlling stake in DIRECT TV, which would remove the business from its books while still giving it access to DIRECT TV’s distribution channels.
A $20 billion price tag has been floated, with potential bidders including private equity groups Apollo Global Management and Platinum Equity. Such headlines come and go, however. The Journal in September 2019 reported that AT&T was exploring ways to divest of the business, including a combination with rival Dish Network.
BUSINESS WIRELINE. Rounding out the Communications segment are voice and data sales to business customers, which has registered a steady performance and healthy margins inline with consumer wireless.
AT&T announced its acquisition of Time Warner in 2016 and completed the deal in 2018 for $108.7 billion, including the assumption of Time Warner debt. It remains to be seen whether this venture will turn into a boondoggle like DIRECT TV, or whether the content+mobile synergy strategy will finally prove correct. Much of the activity on this front surrounds streaming subscription service HBO Max, which launched in May 2020.
TURNER. This business includes media properties such as CNN, Cartoon Network, TBS, and TNT, among others. Like DIRECT TV, it’s a business that is also coming under pressure from the cord cutting trend. Turner derives about two-thirds of sales from carriage fees, which cable companies and other pay-TV operators pay for the rights to carry its channels, whether viewers are watching or not. This business model is becoming increasingly untenable for cable channels as consumers turn to Netflix, Amazon Prime, Disney+ and Hulu.
WARNER BROS. This business includes movie, television and video-game production and distribution. Altogether, the Warner content library (including Turner and HBO content) comprises nearly 115,00 hours of programming. That’s more than 10,000 feature films and 2,400 television programs, comprised of more than 120,000 individual episodes.11
HOME BOX OFFICE. HBO is where AT&T has renewed its hopes for content+mobile synergies. In May 2020, AT&T launched HBO Max, bringing to market yet another online streaming service from HBO. The new service replaces its two previous offerings: HBO Now, which was available from WarmerMedia directly or via Apple, Amazon, Roku etc., and HBO Go, the online companion service for those who subscribe to HBO via a cable, satellite or other pay-TV operator.
Think of HBO Max as an upgrade. It includes all HBO content, plus additional (but not all) content from the Turner and Warner libraries. The subscription cost remains the same at $14.99 per month (compared with $15.99/mo for the highest tier of Netflix and $6.99/mo for Disney+).
In 2Q2020, AT&T broke out HBO numbers for the first time, reporting 36.34 million domestic “HBO Max and HBO Subscribers.”
Yet it’s difficult to discern from these numbers how well HBO Max is performing. The category “HBO Max – Wholesale” includes any subscriber who has access to HBO via a pay-TV plan such as DIRECT TV. Viewers who get their HBO via cable and satellite enjoy HBO Max for free—just like they did with HBO Go—but this doesn’t necessarily mean they are using the streaming service.
“HBO Max – Retail” is any person who subscribes to HBO Max either from WarnerMedia directly or through a third-party app, such as iTunes. Any person who previously subscribed to HBO has now been ported over to HBO Max. Thus it’s not clear how many of these nearly 3 million subs are new from the May 2020 launch.
The “HBO” category is for domestic accounts that “do not have access to HBO Max.” This likely refers to HBO Now customers who subscribe via a third-party service such as Amazon Prime or Roku, which have yet to sign new distribution terms WarnerMedia. If you subscribe to HBO through either Amazon or Roku, you are not getting the additional content available under HBO Max.
The last category, HBO Commercial, refers to bulk accounts such as hotels. These accounts do not have access to HBO Max.
Market confusion aside, AT&T hopes HBO Max can compete in the streaming television arena. All told, WarnerMedia has nearly 9 million standalone streaming subscribers for HBO/HBO Max. This compares to 193 million subs for Netflix,12 57.5 million for Disney+ and 32 million for Hulu.13
AT&T is already claiming some success in realizing content+mobile synergies. On the second-quarter conference call, CEO John Stankey said he was seeing better take up of premium wireless plans thanks to HBO Max bundles. “I made that point deliberately because this is where HBO Max and wireless come together nicely,” Stankey said. “We’re giving customers a reason to go up in the more robust unlimited plans, and we’re already seeing that penetration increase.”14
AT&T dividend analysis & risks
AT&T has increased its dividend payout every year for 36 years. The current full-year payout is $2.08 per share, representing a yield of 7.17% at current prices. That’s the highest it has been in more than 20 years.4 Of course, this historically high yield is the result of COVID-19 pummeling AT&T shares. The stock started the year at about $39 per share and presently sits around $29.
Yield-hungry investors who buy AT&T today may be drawn to an attractive risk-reward scenario. An optimistic view is that AT&T offers $10 in potential upside as shares recover pre-pandemic levels. A more moderate view is that shares are done falling and further downside is probably limited.
Most of the COVID-19 impact was felt in the WarnerMedia segment due to delayed movie and television releases, and lower advertising spending resulting from delayed sports programming. In addition, a slowdown in global travel hurt roaming revenue in the wireless segment. Management reports the pandemic cut into the top line by $2.8 billion in 2Q2020, and dented earnings by 9 cents per share.15 Any near-term catalysts for AT&T will be tied to the recovery of its movie and television business. Longer term, investors will be watching HBO Max and whether AT&T can successfully leverage its digital content library to attract and retain mobile subscribers.
The ability for AT&T to preserve its dividend payments will depend on its free cash flow, capex and debt loads. AT&T has allocated $20 billion to capex for 2020, which is more than supported by cash from operations. Furthermore, the company is conserving cash by suspending its stock buyback program, which would have cost $4 billion in 2Q2020.16
Nevertheless, AT&T’s long-term debt load deserves close scrutiny. The company took on massive amounts of debt to acquire DIRECT TV and TimeWarner. Management notes they have pared debt since 2019, and an environment of low interest rates has allowed them to refinance near-term and long-term borrowings.17
Management is also working to pare debt by selling off $5 billion to $10 billion in assets in 2020.18 A short list of potential candidates include:
- DIRECT TV
- Vrio, its Latin American satellite TV business
- Xandr, its digital advertising business
- Crunchyroll, a streaming anime service under WarnerMedia
AT&T dividend payment history and schedule
The AT&T dividend came with a 50% dividend payout ratio in 2Q2020, and the company guided for a ratio of about 60% in the current quarter. “We’re on track for full year. Year-to-date, we’re on track already,” chief financial officer John Joseph Stephens said. “And we usually have a better second half than we did first half, so feel really good about the commitments and are really targeting the low end of the 60s for the payout ratio. We’re striving to beat that target.”19
Frequently Asked Questions
How much is AT&T’s dividend?
AT&T’s current annual dividend is $2.08 and it is paid quarterly ($.52 per quarter).
How often are dividends paid?
Dividends are typically paid quarterly by most companies. AT&T pays the dividend quarterly.
What is the ex-dividend date for AT&T?
To capture the dividend payout, an investor must own the stock prior to the ex-dividend date. AT&T’s last ex-dividend date was July 9, 2020 for the August 3, 2020 dividend payment. The next ex-dividend date will likely be around October 9, 2020 for a dividend pay date around November 1, 2020.
1 AT&T. 2Q20 Financial and Operational Trends, page 2.
2 CFO John Joseph Stephens. AT&T at Bank of America, page 10.
3 AT&T. Historical Common Dividends Data.
4 Data as of September 14, 2020. AT&T – 31 Year Dividend History.
6 Data as of September 14, 2020. AT&T vs S&P 500 Index.
7 AT&T. 2Q20 Financial and Operational Trends, page 7.
8 Verizon. 2Q 2020 Earnings Conference Call Webcast. Download “Financial statements,” page 6.
9 T-Mobile US. Q2 2020 Financial Results, page 6.
10 AT&T. AT&T Completes Acquisition of DIRECTV.
11 Warner Bros. Television.
12 Netflix. 2020 Second Quarter Letter to Shareholders, page 7.
13 The Walt Disney Company. Third quarter Fiscal 2020 earnings, page 6.
14 AT&T. 2Q 2020 Transcript, page 14.
15 AT&T. 2Q 2020 Transcript, page 4.
16 AT&T. Form 8-K filing dated March 19, 2020.
17 AT&T. 2Q 2020 Transcript, page 6.
19 AT&T. 2Q 2020 Transcript, page 15