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AT&T announces cutting dividends… Goodbye AT&T

Dividend investors are outraged. At least, I am. This is probably the first time I feel betrayed by the company’s management. For months and years, AT&T (T) management was defending the dividends. Even at their latest conference call, they assured investors that their dividend is safe. And two days ago, the same management announces cutting dividends. So, I sold all my shares.

AT&T betrayal cutting dividends

I know one should never fall in love with any stock out there but I feel betrayed by the company management. The reason for this feeling is that when I decided to rebuild our portfolio in 2019 after unsuccessful 0dte SPX trading that almost wiped it out, AT&T was on my accumulation watch list. We were buying up the stock, little by little, every month after month, we were buying shares and accumulating our holdings. And we were also selling options. It took a lot of effort.

We finished accumulating AT&T just a few months ago reaching 100 shares, we continued accumulating more and we reached 150 shares just a month ago. And suddenly, the dividend cut.

AT&T cutting dividends by 50%

If you do the math, AT&T is set to cut its dividend by almost 50%. That will send the stock down to a $15 – $20 price level. If you purchased the stock at a $28 – $30 cost basis level, you will get ripped off. Your income will be slashed by half and your principal capital will be destroyed. I do not know how about you, but this is not acceptable to me.

AT&T zero growth for the last 20 years


AT&T cutting dividends

People were investing in AT&T for the dividend and sacrificing capital growth. Myself included. I was willing to buy and hold this “bond-like” stock for its generous dividend and accepting that there will be now growth.

My philosophy was that I can be selling options around my AT&T position (covered calls and puts) and collecting further income. That would be lowering my cost basis and artificially providing the growth. That incentive of safe steady and generous dividend is gone. What is now left is zero growth. Not interested.

The spinoff

The company is getting rid of Warner Bros and its HBO Max service. That could be a lucrative source of income for AT&T if managed properly. Not anymore. The new company let’s call it “Warner Discovery Time” will inherit approx $40 billion debt from AT&T. Add about $20 billion debt from Discovery+ and you will have a company burdened with $60 billion debt right from day one. That is about three times more than Netflix.

The new company will have about 60 million subscribers. Netflix has 260 million subscribers. The expected revenue of the new company is $35 billion annually but burdened by $60 billion of debt. Good luck competing with Netflix or Desney+

The consequences of bad management

This is a consequence of bad management. Their skyrocketing debt, horrible acquisitions, and now dividend cut. Well, AT&T is losing a dividend aristocrat status, so it is going away from my portfolio. I might buy back 25 years later… When it started all looking good and the company looked like finally taking care of their business, paying off the debt, and now screwing the investors again. There was no capital growth in this stock whatsoever for years. The only reason for holding this bond-like stock was a good dividend. And now, there is no reason holding it whatsoever.

There is a trust damage effect involved as well. I personally do not trust the management who mismanage the company so much that they have to cut the dividend. One thing is if they had to cut the dividend due to force majeure such as the pandemic, but I distrust the management which just a month ago was defending the dividend and saying that it was safe while they must have known that it was a lie as this deal didn’t happen in a month, so even if the stock goes to zero, I probably will not buy it…

Goodbye AT&T.

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