AT&T investors. Get ready. This is about to be a very exciting, news filled week. AT&T (T) is set to release earnings on January 27th. We are expecting some MAJOR news when the company reports its results. Will, they beat earnings? Will they announce a dividend increase?  There are a lot of questions to be answered. In this article, I share THREE things that I want to see, and learn more about, when AT&T releases earnings.

Why do I Care About AT&T?

This is a fair question to ask. With many other great dividend stocks out there, why do I care enough about AT&T’s earnings release this week to write an article about it?

First, AT&T is one of my largest dividend stock holdings. As a result, AT&T is one of my largest dividend-paying stocks as well.  My wife & I receive a combined $700 in dividend income annually from AT&T.  It is funny, I wrote about this earlier in the year. Our AT&T dividend easily covers our monthly AT&T internet bill. It cracks me up every time I think about it.

Second, AT&T is one of our Top 5 Foundation Dividend Stocks. Several years ago, Lanny created a list of 5 dividend stocks for beginning investors to consider when building their portfolio.  To us, it is all about building a strong, reliable dividend stream that will allow you to achieve financial freedom. So if AT&T is a company we consider a foundation stock, you bet we are going to keep a close tab on any major developments!

Clearly, this isn’t just about us. The mission of our website is to spread the news of dividend investing to the community. This isn’t just about us. Sure, we want to reach financial freedom. However, we also want YOU to reach financial freedom. Since AT&T is such a popular stock in the dividend investing community, I wanted to take the time to share with YOU the 3 major items I will be looking for when reviewing AT&T’s upcoming earnings release.

1.) HBO Max Subscriber Growth

HBO Max is the future for AT&T. The company launched its flagship platform to compete against Netflix, Disney+, Amazon Video, and all of the other major streaming companies. They used their impressive content library, which was bolstered by the TimeWarner acquisition several years ago, to build a strong service.

HBO Max’s subscriber growth has been impressive lately after a slow start.  The subscription base grew significantly in the fourth quarter after the company’s groundbreaking announcement. AT&T announced that all new WarnerMedia movies would be released on HBO Max the same day that the movie is released in theatres.

That is a HUGE development. Think about how important that is for the entertainment industry in 2021…and the future. We no longer have to wait several months to watch a new movie at home. AT&T is betting that this announcement alone will drive a ton of new subscribers to their service, which costs $15 per month.

Wonder Woman was the first movie released directly to HBO Max.  The results were promising. Interestingly, per this article, it was reported that 19% of HBO Max subscribers stated they would have canceled HBO Max if it were not for Wonder Woman’s release.

Clearly, AT&T is on to something with this idea. In this earnings release, I want to see strong subscription growth in the fourth quarter. In particular, I want to see the full impact of the company releasing movies directly to HBO Max. Management has pushed all of their eggs into the HBO Max bucket, so let's see how this service performed. To me, this will be the major driver of the market’s reaction when earnings are released this week.

2.) An Update About AT&T’s Plan for DirectTV

Look, it is not a secret that AT&T’s acquisition of DirectTV has not gone as planned. In 2015, AT&T acquired DirectTV for $48.5 billion. The plan added a significant amount of debt to AT&T’s balance sheet. The promising acquisition quickly turned south.

AT&T never could figure out the right way to integrate DirectTV. Quickly, subscribers fled the service.  Especially as other streaming alternatives began to take shape. DirectTV’s peak subscription totals were 21 million at the beginning of 2017. Now, the company has just over 13 million (Q3 2020). With subscribers fleeing, the company is trying to figure out what to do with this asset that is quickly losing value.

In 2020, rumors were circulating throughout the year about AT&T potentially selling DirectTV. The rumor mill started to heat up towards the end of the year. It was reported that AT&T was considering offers to sell the full business line for $15b, with the buyer assuming debt.

We even heard our first rumor of 2021. Last week, it was reported that AT&T is in exclusive discussions with TPG Private Equity to sell a minority stake in DirectTV. AT&T would then use the cash to reduce debt outstanding to below $150 billion for the entire company. Selling a minority stake is a lot different than selling the entire business. Unfortunately, the transaction value has not been announced yet.

What I want to see in the earnings release is actually pretty simple.  Clarity. What is ultimately AT&T’s plan with DirectTV? Will they sell their entire stake? If they do only sell a minority stake, what is their plan for this business unit? What will AT&T to stop losing subscribers and turn this business unit around?

Hopefully, we will receive more clarity and answer some of our burning questions this week when the company releases earnings.

3.) AT&T Dividend Increase?!

Now here is the million-dollar question for AT&T shareholders. The two of us, and so many others in the dividend growth community, want to know what is going on with AT&T’s dividend!

Typically, AT&T increases its dividend the first week of December. We watch dividend increases closely. In fact, we write about expected dividend increases monthly and talk about them all the time on our YouTube Channel. As passionate dividend growth investors, we love nothing more than seeing our passive income increase without lifting a finger!

One could imagine how shocked we were when AT&T did not announce a dividend increase as planned in December. When a company does not announce a dividend increase as scheduled, it always puts you on high alert. Especially that company is a Dividend Aristocrat!

Are we concerned about the safety of AT&T’s dividend? No, not today. The company’s dividend payout ratio is between 60%-70%. Further, despite a large debt balance, AT&T still has a very strong cash flow. Their free cash flow is more than enough to cover the company’s current dividend.

Luckily, management stated that they will announce more details about the company’s capital allocation plan for 2021 in this upcoming earnings release. Still, there are some major questions that need to be answered.

Why did the company pass on increasing its dividend? What is their plan for 2021? Will AT&T focus on paying down its debt first and then increase its dividend later in the year? I am excited to learn the answers to these questions.

Summary

Again, this will be a big week for AT&T and AT&T shareholders. So everyone, pop your popcorn and buckle up. Hopefully, we will be smiling on the 27th when the company releases earnings. Ideally, though, I just want answers to the three items that are on my mind this week. Let’s see what AT&T can deliver!

What do you want to see from AT&T? What are your expectations ahead of their earnings release?