What I'm Doing with AT&T and How I Rank 11 Stocks that Could Replace It

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This article is triggered by AT&T’s (T) surprise announcement on May 17, 2021, that it is going to spin off its media assets into a new separate company.

The reorganization is complex, but one of its outcomes is that AT&T’s dividend will be cut next year. We don’t know exactly by how much, but estimates are in the 40% range.

Since I own T as a dividend-growth stock, T’s dividend and its future in my portfolios will be the subject of this video.

What AT&T Announced
The announcement caught most investors by surprise, because AT&T had spent the past five or six years assembling media and entertainment assets, such as DirecTV and Time-Warner, in an effort to become a content + distribution powerhouse.

The new arrangement completely undoes that strategy.

I’m not going to address everything that is going on, some of which is not even known yet. It’s going to take a year for the parties to fill in details, finalize numbers, and complete the transactions.

What I will do is lay out what I think are the five most important takeaways from the restructuring. My main source is AT&T’s presentation about the announcement, supplemented by comments on its investor call and some media commentary about it.

What I Intend to Do
The advance information about the dividend cut – which will occur when the deals close in 2022 – gives AT&T shareholders months to decide what, if anything, to do with their shares: Hold them, sell them, trim them, or buy more of them.

Variables that may influence those decisions are:

(1) Something may go wrong with the deal.

(2) The prices of both AT&T’s and Discovery’s stocks will change continually over the next 12 months, which may alter investors’ perceptions about what to do.

(3) Terms of the deal may change as the companies continue discussions and work out details. Or, heaven forbid, they may change their minds.

11 Stock Candidates to Replace AT&T
In my Dividend Growth Portfolio, I stay invested. So I won’t sell AT&T until I know what stock or stocks I will buy in its place.

I don’t necessarily expect to replace all of AT&T’s annual income with its replacement(s). That’s because AT&T’s yield is currently so high (7.0%), that the dollars I realize from selling my shares will probably not be sufficient to “buy” enough income from other high-quality stocks.

That’s OK. In the grand scheme of things, the overall loss of income will be a small percentage of my total income, and the deficit will hopefully be made up quickly not only by dividend increases from other companies, but also by the income-compounding effect of reinvesting dividends throughout the year.

Watch the video to see which 11 stocks could replace AT&T.

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