AT&T CEO says dividend cut reflects shift to put more cash back into the business – CNBC

AT&T‘s sharp dividend cut freed up cash that can be used to boost the company’s results, CEO John Stankey told CNBC on Friday.

“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 pay out on the dividend. So it’s time to make that transition for this company,” Stankey said on “Squawk Box” from the AT&T Pebble Beach Pro-Am golf tournament in California.

AT&T on Tuesday cut its annual dividend nearly in half to $1.11 per share, as the company announced it will spin off WarnerMedia in a $43 billion deal that will merge its media properties with Discovery. AT&T’s shares tumbled 4% percent the same day. The stock rose modestly Wednesday and Thursday but dropped more than 1.5% on Friday.

“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.”

AT&T expects the WarnerMedia spin-off to be completed in the second quarter of this year. Under the merger deal, announced last May, AT&T shareholders will own 71% of the new Warner Bros. Discovery company and receive a 0.24 share of Warner Bros. Many of the financial details of the transaction became known for the first time this week.

The combination will bring together AT&T-owned CNN, HBO and the Warner Bros. studio and Discovery’s channels, including Animal Planet, TLC and its namesake Discovery Channel.

Stankey said that despite shareholders’ concerns, he expects the merger to ultimately bring value to those who own the newly-minted company’s stock — though not without some volatility along the way.

“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.”

Stankey said the company’s dividend yield of more than 8.5% on Friday morning remains strong. “Over time, intrinsic value tends to be recognized by the market, and I think there’s a lot of intrinsic value.”

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