Business

AT&T throws media values ​​in 2021. This year it wants to add investors.




AT&T Inc.

T 0.83%

faces a busy year as they try to complete a divorce with the entertainment business, ease investors’ worries about dividends and show that they can continue to woo new wireless customers.

The Dallas conglomerate spent much of 2021 rebuilding its gut. It launched a series of major divestments spanning pay-TV, media production and advertising, aimed at refocusing AT&T on more predictable growth opportunities from profit centers such as wireless and broadband services.

Wall Street analysts largely welcomed the changes. The stock price did not reflect a similar embrace from investors.

AT & T’s shares fell 1[ads1]4% in 2021 and briefly reached a 12-year low in December before picking up again. The sale has pushed the dividend yield – a factor that reflects the cash a company pays its shareholders divided by the share price – above 8%. The S&P 500 rose 27% in 2021.

CEO John Stankey in June called the period “a tough year that has been full of anxiety.” In December, he said he hoped “our attention will be focused solely on the future and not on what we needed to do to relocate or restructure the business within a year”.

On Wednesday, AT&T said the core wireless unit added around 880,000 post-paid phones in the fourth quarter, topping 800,000 phones in the same period in 2020. The company’s WarnerMedia unit ended 2021 with 73.8 million global HBO subscribers, ahead of its 70 million to 73 million targets.

In May, AT&T announced plans to spin WarnerMedia, the entertainment empire it acquired in 2018, into a new joint venture with Discovery Inc. The transaction secured European competition authorities’ approval in December, but is still under consideration in the United States and other countries.

AT&T shareholders will retain a 71% stake in the new media creation, so the company’s share price partly reflects how the market values ​​the future media business, which will be called Warner Bros. Discovery.

The remaining telecom company is expected to pay shareholders a lower annual dividend. Managers have said that the annual payout will fall from around $ 15 billion to between $ 8 and $ 9 billion after the media spinoff closes. An AT&T spokesman pointed to executives who have said the amount will continue to make it one of the best dividend payers.

David Jeffress, portfolio manager at Laffer Tengler Investments, said his firm had owned AT&T shares but sold them in early 2021. He mentioned the dividend reduction among his concerns.

“Once you have cut dividends and that level of uncertainty is incorporated, it is really difficult to regain confidence in a dividend investor,” he said. “We may come in again at some point in the future, but we really want to see the dust settle.”

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Another factor that depresses AT & T’s shares has also punished its close rivals. Shares in T-Mobile US Inc.

and Verizon Communications Inc.

fell almost as much as AT&T in 2021, when all three operators offered large discounts to retain and attract customers.

These rebates, combined with a wave of federal government subsidies linked to the coronavirus pandemic, helped mobile phone operators grow unusually strong. The three best operators received almost 5 million postpaid telephone connections – a closely monitored calculation – during the nine months ending in September.

The increase in subscribers led some market monitors to question how long the good times can last. Jeff Moore, a wireless industry analyst for Wave7 Research, compared such explosive growth to the fact that all 32 NFL teams won the same Super Bowl.

“It just does not make sense,” he said. “You would think that someone loses and someone else wins.”

“Once you have cut dividends and that level of uncertainty has been incorporated, it is really difficult to regain confidence in a dividend investor.”


– David Jeffress, portfolio manager at Laffer Tengler Investments

AT & T’s rivals have pointed to their now-year-old marketing flash, which offered deep smartphone discounts for new and existing customers, as the start of a race to the bottom that could ultimately hurt the industry’s profitability.

AT & T’s executives have said their wireless customer growth is lasting. They have cited smarter marketing and improved traction in the public safety market, as well as discounts, among the factors that help their results.

Mr. Moore agreed, saying Verizon is the most vulnerable to declining customer growth this year because the retail business has lost ground to more aggressive rivals. A Verizon spokesman declined to comment.

“There is too much skepticism for AT&T,” said the analyst. “They have really turned the results around.”

Some shareholders were not willing to wait. Jerry Braakman, chief investment officer at First American Trust, said his firm had AT&T shares in customer portfolios for several years before selling them in December 2020. He said the pandemic’s reorganization of winners and losers in the film industry prevented AT & T’s WarnerMedia unit from delivering on his promise.

“AT&T looked like their strategy was struggling, so we decided not to go down without explaining ourselves first,” he said. “Sometimes you have to cut your losses and move on.”

John Stankey talks about AT & T’s future as a streaming service and how its theatrical distribution has been affected by the pandemic with WSJ editor-in-chief Matt Murray on WSJ Tech Live 2020. Photo: John Lamparski / Getty Images (Video from 19.10.2020)

Other investors are looking to profit from the pessimism. Ryan Kelley, chief investment officer and portfolio manager at Hennessy Funds, said his firm still owns AT&T shares in a value-based fund that focuses on high-yield stocks.

“With the returns as they are and with analysts becoming more comfortable with where they are now, we hope for better returns here in the future,” he said. “Hopefully, most of the downside is already priced into the stock.”

Write to Drew FitzGerald at andrew.fitzgerald@wsj.com and Karen Langley at karen.langley@wsj.com

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