​​#news #stock #dividends AT&T (#T) cuts dividends: what's a | WhiteRaven Capital

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AT&T (#T) cuts dividends: what's an investor to do?

With the recent merger with Discovery, AT&T has announced a 40-50% dividend cut. For many investors, and especially those with a dividend strategy, the company has lost value because it is no longer performing as well as it used to. Is the stock worth selling or not?

Discovery is buying a division of AT&T and the assets of WarnerMedia. The deal will create a new media giant that will wage a streaming war against Netflix and Disney. Many say the deal was inevitable and will only benefit AT&T because it will allow the company to focus again on phone and Internet communications while significantly reducing its debt load.

But for investors, who invest mostly in dividend stocks, the news has a negative connotation because of the impending dividend cut.

The new AT&T is projected to generate $20 billion in cash flow, of which 40% will be paid as dividends. As a result of the merger, the dividend will drop from $0.52 to $0.29, a drop of 44%.

But before you sell the stock, ask yourself why you bought it. If you're investing for dividends, the answer is obvious - income. Okay, great, now ask yourself, by what date do you want income?

If you're retired and using dividends to cover your living expenses, then your answer is: now. In that case, the solution is simple. To keep your passive income from AT&T stock, you need to sell your stock and buy something that will cover your need for money.

But if you're going to retire in 10, 20, or 30 years, the horizon will be completely different. And then your income no longer just depends on dividend yields for today, but also dividend increases in the future.

We assume that right after the dividend cut, AT&T will resume dividend growth at about 2% per year, which is the average growth rate the company has had over the past ten years.

If you're investing for the long term, then for you AT&T will be the company in your portfolio with not the biggest dividend yield, but with huge growth potential. But it's worth remembering that the problems are fraught with a decline in AT&T's stock price and we could see prices below $30 a share.

If you want to use AT&T as a cash cow, get dividends, and spend them immediately, you are probably better off selling the stock. And investors who are investing for the long term should look at the huge potential for future dividend growth and be patient.