AT&T is reportedly ready to cut its dividend by up to 77%. This would be the first cut in the company's history, and it may leave long-time shareholders wondering if they should keep holding, or, in some cases, unable to hold because they need dividend income. AT&T is burdened by heavy debt and uncertain businesses. This isn't your grandfather's AT&T anymore.
 |
|
|||||
|
||||||
|
||||||
By
The Wall Street Journal reported this morning that the board of directors of long-time bellwether AT&T (NYSE: T) is meeting to potentially cut the company's dividend payment by as much as 77%. Although the Fool doesn't like to report on rumors, whether this proves true or not, it begs very interesting questions. AT&T is one of the most widely-held stocks in the country, and more families have held AT&T over several decades than have held any other stock. Many of these families rely on AT&T's $0.88 per share dividend. The dividend cut, which could be announced today, might decrease AT&T's dividend to as little as $0.20 per share. This would be the first dividend cut in the company's more than 100 year history. So What? All of this activity makes AT&T less of an investment of stability and more an investment of risk. Will the new investments in cable pan out? Is AT&T disjointing its better businesses? Will the long distance phone business ever improve again? What does AT&T itself stand for anymore? As an investor, when you look at the company, really the debt stands out most. AT&T had $29.4 billion in long-term debt as of September 30, and $32 billion in debt maturing in one year. Much of this is due to cable investments. Will the business recoupe a meaningful return on those investments in the next five years? Doubtful. Ten years? Even that can be questioned. AT&T will pay nearly $3 billion in interest on its debt in 2000, about $1 billion more than last year. It currently pays another $3.3 billion in annual dividends. Its net income should be around $10.5 billion for 2000, although AT&T has only $316 million in cash and equivalents. This balance sheet situation makes it much more difficult for management to reinvest in the business, and taking on more debt would now mainly add more worry. Now What? It was expected that AT&T's dividend might marginally decrease in anticipation of its breaking into four businesses, but perhaps management would be giving shareholders an intentional message with a steep decrease, saying: This isn't your old AT&T anymore. We're taking on more risk in hopes of finally finding new niches in higher-growth businesses. Doing so, we have more debt than ever before. Therefore, we need to end this silly large dividend payment. Look on the bright side: Dividends are taxed twice, so we're saving you some tax trouble. Thanks for being a shareholder, and here's to an even better 2001! Readers, what do you think is AT&T's problem? (Or maybe cutting the dividend is smart. As the Fool recently wrote, Grow the Business, Skip the Dividend.) Share your view on the AT&T discussion board.
For several years, AT&T has actively tried to reinvent itself. It took on large amounts of debt to buy cable properties. It spun off Lucent Technologies (NYSE: LU), NCR (NYSE: NCR), AT&T Wireless (NYSE: AWE) and several other divisions. Now the company now plans to divide its business into four new publicly traded companies: consumer, business, wireless, and cable broadband.
If the dividend is cut by a sizable amount, many long-time AT&T holders who rely on dividend income will find themselves looking for a new place for their money -- a company that still pays a strong dividend, such as Philip Morris (NYSE: MO).
RSS Headlines
Fool UK
