AT&T's Dividend: It's A Red Herring

Nov. 06, 2015 5:40 PM ETAT&T Inc. (T)321 Comments


  • Many investors own AT&T for the high dividend yield, and management realizes that free cash flow will eventually not be high enough to cover the dividend payments.
  • AT&T’s DIRECTV purchase was a short-sighted decision simply to avoid a dividend cut and prevent a mass exodus by shareholders.
  • Due to a lack of real growth opportunities and a variety of significant challenges and risk factors, AT&T does not offer shareholders an adequate total return opportunity.

Investors are hungry for yield. And as interest rates have remained depressed since the financial crisis, many investors have flocked to high-dividend stocks like AT&T (NYSE:NYSE:T). However, AT&T is a company in decline. Its wireline business continues to decline, and its wireless business can no longer grow fast enough to offset the declines. AT&T's relatively recent purchase of DIRECTV was a short-sighted decision to acquire a sputtering stream of free cash flows to postpone an AT&T dividend cut. We believe AT&T's very high 5.6% dividend yield is a red herring meant to distract investors from recognizing the company's lack of long-term total return opportunities.

AT&T's wireline business has been declining for years.
It should come as no surprise to anyone that AT&Ts wireline business has been declining for years. AT&T sums it up nicely in their most recent annual report (p.24) by saying:

"Wireline… will face continued competitive pressure in 2015 from multiple providers, including wireless, cable and other VoIP providers, interexchange carriers and resellers. In addition, the desire for high-speed data on demand, including video, and lingering economic pressures are continuing to lead customers to terminate their traditional local wireline service and use our or competitors' wireless and Internet-based services."

And per AT&T's third quarter earnings release total wireline voice connections added only $22.8 billion in revenues during the quarter versus $26.2 billion for the same quarter a year earlier. And looking back even further, we can see that AT&T's wireline segment added $5.6 billion in income during 2014, down from $6.3 billion in 2013, and down from $7.2 billion in 2012, and down from $7.3 billion in 2011, and down from $7.8 billion in 2010, and down from $8.5 billion in 2009. (2014 and 2011 Annual Reports, pp. 17 and 37, respectively).

AT&T's wireless business is no longer able

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