AT&T (NYSE: T) shares fell 4% after announcing its dividend cut, which ultimately freed up previously tied up cash as a means of improving the company’s results, according to CEO John Stankey. The company had previously used its free cash flow, primarily produced by its communications business, to make several acquisitions.
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“I’d much rather be pouring some of that cash back into the infrastructure of this business to [generate] returns at a higher level than what we payout on the dividend. So it’s time to make that transition for this company,” Stankey said on “Squawk Box.”
The American multinational conglomerate holding company reduced its annual dividend by almost half to USD1.11 per share on Tuesday. The change comes after AT&T revealed plans to spin off WarnerMedia in a USD43 Billion deal, which will merge its media division with Discovery. AT&T had previously spun off its DirectTV and other video operations throughout 2021, in a deal valued at approximately USD16 Billion.
“I think there was a little bit of adjustment that went on once the dividend numbers settled in,” Stankey said. “We had not decided whether we were going to spin or split, we couldn’t state a dividend number.”
The telephone company expects the WarnerMedia spin-off to be finalized in the second quarter of 2022. Amid the deal, AT&T shareholders will own 71% of Warner Bros. Most of the financial information regarding the transaction was just released this week.
The deal will rally up AT&T-owned CNN, HBO, and the Warner Bros. studio as well as Discovery channels, such as Animal Planet, TLC, and the Discovery Channel. Stankey said that he believes the merger will eventually bring value to those who own the newly forged stock.
“Look, coming out of this, they have a great opportunity. They’re gonna own two stocks and I think both have great prospects,” Stankey said. “There’s going to be people picking sides on where they want to go, and so we expect there’s going to be some days where we see a little bit of movement.”