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AT&T: The Leg-Pulling Oligopoly Facade And Why I'm Buying

Apr. 04, 2022 10:11 AM ETAT&T Inc. (T)CMCSA, DIS, WBD, NFLX, ROKU, T.PR.A, T.PR.C, TBB, TBC, TMUS, VZ67 Comments
Bashar Issa profile picture
Bashar Issa


  • Management's decision to cut dividends alienates a broad segment of the company's shareholder base, suppressing shares.
  • The WarnerMedia spin-off offers an attractive one-time dividend, augmenting the 4.6% forward annual distribution yield.
  • The industry is characterized by intense competition and high capital costs. Rapid technology changes exacerbate these dynamics, counterbalancing the utility-like demand for communications.
  • Investors shouldn't expect extraordinary returns from consumer trends, including 5G. Upstream supply chain businesses are more favorably positioned to profit from the 5G rollout.

AT&T Advises Its Over 200,000 Workforce To Work From Home, As Coronavirus Continues To Spread

Ronald Martinez/Getty Images News

Investment Thesis

As the Fed grapples with inflation, leading experts, such as the former Federal Reserve of New York president, predict a recession. These projections might be true, but personally, timing the market isn't my virtue. For all I know, the duration, extent, and severity of

This article was written by

Bashar Issa profile picture
Bashar is a contributing writer at Seeking Alpha, focusing on Long/Short investment ideas, with a geographic focus in North America. Before that, Bashar worked at an Investment Fund in the United Kingdom. He has a Master's degree in Finance from the Queen Mary University of London and a Bachelor's degree in Economics from Middlesex University.

Analyst’s Disclosure: I/we have a beneficial long position in the shares of T either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (67)

What’s the actual ATT yield after spin-off
chuckfinn profile picture
@DLSheeler Depends on price. If 18 then yield is 1.11/18 or 6.2%
Pedr0 profile picture
@DLSheeler You can actually buy T without Discovery since yesterday the ticker is something like T-WD or T.WD depending on where you look. T-WD is currently trading for about $18, so the yield is about 6.2%
bengalesq profile picture
Good and quick read. Thanks.
Baloney Sandwitch profile picture
Lot of sandbagging in this article. Of course, this is an oligopoly, with 3 main competitors dividing up an enormous market. No one said an oligopoly cannot have intense competition. That is one reason a fourth player will have a very tough time. Also, the market is growing at GDP+. I think we can expect a 4% growth going forward. The best strategy is by all three players - VZ,T,TMUS and then go to sleep.
Joel Greenblatt is currently holding shares of T in his Gotham Asset Management portfolio. We are in good company.
Buy and hold T. Keep WBD as a free option. Win!
I’m thrilled for the merger and $T’s future growth. I see $WBD as a catalyst and leader in streaming and will only flourish with a fantastic management team lead by David Z. I plan on holding all of my $WBD shares which equates to 1100 shares. I’m going to venture out by saying this is a sleeper and WBD will triple with 2-3 years. Only time will tell but, I’m locked and loaded abt the future of both CO’s
WBD is undervalued.
TommyIrish profile picture
"I have never been a fan of AT&T (NYSE:T). I started writing this piece a year ago. Still, I never published it because AT&T was so complex that the sheer attempt to graph subscriber numbers was a toil."

Good for you - the pit of misery - only ever getting worse.

"The industry is characterized by intense competition and high capital costs. Rapid technology changes only exacerbate these dynamics, counterbalancing the utility-like demand for communications."

Indeed now relatively less attractive as rates go up 2%.

"I continue building up my positions, gradually adding more shares as we go through these turbulent times, and sticking to a long-term investment strategy that matches my goal of building a retirement fund"

Seems illogical - don't see ANY reason to buy before the split.
I had no idea that dividends and spinoffs were the same thing. I guess that means I get monthly and quarterly spinoffs from many different companies.
@anthemmike you forgot "/s"
Why does everybody continue to calculate the forward dividend yield on T based off the current price of the combined entity, yet the dividend is being adjusted for the spin-off? Sure you can say you're getting a lower yield on your overall cost basis of the current T shares and you'll be receiving less dividend dollars all else equal....but it's frustrating to keep reading the forward dividend yield on T has a 4 handle for yield when it'll yield 6%+.
chuckfinn profile picture
@iubryan1971 I had the same thoughts on this article and others. 1.11/ 18 = 6.2%
the "simpler" business without that very expensive management layer holdover from their "multidivisional" days would be better. Why not let the telecommunications C suite run the business and get rid of that layer in which resides Stankey and friends? They're the ones that created all the mess in the first place.
Long T but would not add . Lots of uncertainty as management needs to demonstrate that they can execute, something they have done very poorly up to this date. The new Warner Co could see the stock drop or be flat upon initialization as some shareholders sell but long term this could be a BIG winner. The will have excellent management, content, scale and be in an industry where PE multiples far exceed the 7x they get tied to T. Large debt comes with the package but management already has a plan toward reduction. Hopefully both companies prosper as T could no longer support their dividend with the debt they incurred
sourdo profile picture
I agree with the author. Well said common sense article. I like the "simpler" AT&T also.

Long 4500 T
long 600 DISCA, I own both for under $25/share cost.
@sourdo good for you, i only have 834 T :(
I bought a few months ago just so i could get WBD. Later i realized I could have just bought disca. Which would have been better btw?
sourdo profile picture
@omarakthar DISC(A,B,K) is the most volatile, T the least, some of each is good for me. I traded both in February, turned over some fast bucks, and bought them both back for less. I wouldn't sell either right now, but I might buy more of $WBDWV.

The 2-3 year potential for both is good for a likely double on money invested for both. It comes down to your cost really.

Good luck.
thirdcamper profile picture
I see telecom as more a utility than a commodity. It would take a lot to bring me back to T. Maybe someday.
I owned T at 26 and sold at 29 when the cut was announced last year.When the dust settles if T is around 17-19 I will buy back in.I have no real use for spinco,they don't pay a dividend and that is what I am after.
Your article informs well without the usual plethora of hypothetical data. You do mention missteps and complexities, which I believe lead to the major problem --- T's stodgy board members whose most notable out-of-the-box approvals have repeatedly facilitated fiascos.

I cannot expect the latest structure to be more successful for T's shareholders with its current board. A retiree may reconsider buying T shares if its share price drops enough for a more attractive dividend yield. I would be more careful.

Although a price drop within a year or two of the spinoff may seem unlikely to some, what is no longer unlikely is that the current dividend would then be reduced or omitted by either current directors, or an aggressive takeover group that buys out AT&T at its lowered price.

In either case, it may be less risky to consider AT&T a potential growth stock. Its institutional ownership has been slightly over 50%, by the way.
The 5G opportunity is a marathon requiring the metaphorical sprint in capital spending. It remains to be seen if the carriers will be major beneficiaries of the new high speed aerial technology but at these valuations it seems like a reasonable bet. The $1.12 dividend when the value of the TWD spin is stripped out is somewhere north of 6 percent.
josephaoppenheim profile picture
I own T at 24. Since it’s just 1.3% of my portfolio and have little risk no matter what happens, I think I’ll just wait and see what happens. The market is rarely rational. Heck, DISCA has high short interest. Why?
sourdo profile picture
@josephaoppenheim I have noticed that myself, and I have no idea what this means, how can you have so many shares short?

I'm going to sit back and let this cook, its' going to get volatile this month.
josephaoppenheim profile picture
@sourdo I don’t know how they calculate that. Does it include shares sold short via options? If not, then even scarier since more shares than exist can be in play, plus all the margin used, and the two day settlement delay.
D-inv profile picture
@josephaoppenheim Good question about the short interest. Seems to that indicates some traders have been selling shares they have borrowed from others with expectation they will be able to buy replacement shares at a lower price. High short interest just may be indicating short sellers have driven the price below warranted by typical supply/demand. Short covering might be in the wings with price spike. Personally expect P/E differential between VZ and T to narrow after WBD spinoff and WBD price to match or exceed current DISCA.
I had T shares for the deal but I sold them, free shares are nice but for the same money I could get loads more DIscovery shares which swap 1:1 for WBD. About 4 times more. Then if I want T I can buy it post merger at a cheaper price and higher yield.
@Yakspeare unless T shoots up post-merger. But yours is still a good bet.
@Yakspeare my guess is T will become more expensive and WBD will be less expensive in the short term. based solely on my gut feeling. good luck.
@robert paulson 77 the prospectus itself says AT&T expects the price of T to drop as a stock dividend of handing out a part of their business. How much it drops by(and theoretically it could not drop but management expects it to). Indeed in their presentations they are promoting a 6%+ yield which definitely implies a drop.
$Zilch$ profile picture
Thanks to 5G, I no longer have cable internet or cable TV.
I test my 5G internet speed regularly and it's 5 to 6 times faster than previous cable internet. My virtual DVR has unlimited storage and is easier to use than previous cable set top box DVR.
5G has changed everything. Cable, twin wire, and satellite dishes are a thing of the past.
sourdo profile picture
@$Zilch$ That is nice, but we don't all live next to a cell tower. I use up to almost 600 GB,s of data a month with cable. I'm curious on what your plan allows? Is it truly "unlimited".
$Zilch$ profile picture
@sourdo Yes, unlimited. Never noticed any throttling back or slow down.
Dec. 76.18GB of data, Jan. 100.24GB, Feb. 61.82 GB.
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