AT&T touts new 'safe' dividend; HBO/Discovery headed toward single-app future
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AT&T (T
-0.2%) is pitching its stock as appealing to investors after it separates from the media space, suggesting it will be an attractively priced company paying dividends and targeting earnings growth.
Speaking to a Deutsche Bank conference, Chief Financial Officer Pascal Desroches addressed the rampant questions emerging ever since AT&T signaled last spring that a media exit would mean a dividend nearly halved.
The dividend is "not only safe," Desroches says, but a new size ($1.11 annually vs. the previous $2.08) also gives it financial flexibility: "We feel really good about where we are." (See AT&T's Dividend Scorecard here.)
Meanwhile, he went back over the logic that led AT&T to pursue a spin-off in the blockbuster Warner Bros. Discovery deal vs. a split-off: heavy discounting that would be required to move such an unprecedented volume of shares in a split-off.
Discovery has about 700 million shares outstanding, and 1.7 billion new shares would come to market in the deal. âSo, in order to really do a split, you are going to have to create enough demand for that 1.7 billion for an AT&T shareholder base that is dividend-focused retail investors and income-focused fundsâ - most of AT&T's base, which âlikely would not participate."
Elsewhere at the conference, Discovery (DISCA
+2.4%) CFO Gunnar Wiedenfels suggested the combination would create a "blowout" direct-to-consumer product, and signaled the eventual outcome was a single-app service.
There's going to be some kind of bundle at first, to tap early benefits from the merger, but in time it could mean combining HBO Max with Discovery Plus in one large service: âWe will start working on an interim solution in the meantime. So right out of the gate, weâre working on getting the bundling approach ready, maybe a single sign-on."
But the main thrust is going to be harmonizing the technology platforms, building one very strong combined direct-to-consumer product and platform, and thatâs going to take a while.
Also notable, as streaming services ramp content spending into the tens of billions of dollars, Wiedenfels says Warner Bros. Discovery will pursue growth but take a "conservative approach" to content spending. Discovery CEO David Zaslav says "Our goal is to compete with the leading streaming services, not to win the spending war."
Discovery shareholders blessed the union March 11, setting up a mid- to late-April closing for the deal.