AT&T Cuts Its Dividend – What To Do Now (And Two Lessons To Learn)

What happened with AT&T (T)? Well, the company currently has two large businesses housed under one roof. A telecom business. And a media business.

Media is being spun off as a new independent business to shareholders next year. So AT&T investors will still basically own the same stuff but through two separate companies.

A separate media company - Discovery - is going to merge with the new media spin-off, but that's really a small part of this story.

You'll still have the exciting 5G exposure on one side and the exciting streaming exposure on the other. It'll just be packaged differently.

Since the media assets produce a lot of cash flow, the legacy AT&T - the remaining telecom business - will be cutting its dividend after the spin-off completes.

We're talking about a dividend cut of somewhere between 40% and 50%.

Ouch.

However, the media business may pay a dividend of its own, greatly reducing the overall income loss. And if the new business doesn't pay an attractive dividend, investors can simply sell the shares and buy something else that does.

In the end, I don't think current AT&T shareholders are looking at a massive dividend cut after it's all said and done. Certainly not the prevailing 50% headline number.

Moreover, both businesses could get valuation bumps, as AT&T has long been in the doldrums in this respect.

If you sell AT&T stock and move your money into something lower-yielding, then you're still locking in a reduction in income. Now, it's never nice to experience any loss in passive income, so I understand the frustration.

What can we learn from this? Two important lessons come to mind. Both of which I've been consistently repeating over and over again here at the channel. I think this situation is a good opportunity to review both of them.

The first lesson is on the importance of diversification.

I can't repeat it enough. If you're needlessly concentrating on a couple dozen or so stocks, you're taking on unnecessary risk and volatility. That is silly.

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Disclaimer: Please consult with a licensed investment professional before investing any of your money. Never invest in a security or idea featured on this channel unless you can afford to lose ...

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