A dividend cut isn’t needed to fund growth, according to AT&T CEO, and touts HBO Max’s upcoming ad-supported option
AT&T CEO John Stankey told CNBC on Friday the company could keep its dividend payment while investing in growth companies like direct-to-consumer streaming service HBO Max.
In the “Squawk on the Street” comments section, Stankey responded to a question from CNBC’s David Faber who asked the CEO if the money AT&T used to pay the dividend was better for accelerating digital transformation should be used.
That’s a binary decision that AT&T doesn’t have to make right now, Stankey replied.
“I feel very comfortable when we’re at 50, low 50, and mid 50 dividend payout ratios that we can maintain that now and not have to miss the opportunity to keep this business strong and sustainable.” said Stankey, who hosted AT & T’s Analyst and Investor Day on CNBC.
“The moment I cross a path where I don’t believe this can happen, or that we’re not recognized for that return on investment, I obviously have to ask that question,” added Stankey. “But we are not in that position.”
AT&T paid dividends of $ 15 billion in 2020 and generated free cash flow of $ 27.5 billion. According to the January 27 earnings announcement, the company’s payout ratio was 55%. For the coming year, the company predicts free cash flow in the range of $ 26 billion and a payout ratio in the “high 50%” range.
AT&T had a dividend yield of around 6.8% on Friday as its shares traded at over $ 30 each.
Stankey said he was confident that AT&T could grow its revenue in the future. Sales were $ 171.8 billion in 2020, a year hit by the coronavirus pandemic, compared to $ 181.2 billion in 2019.
“We believe we have the portfolio of growth,” said Stankey, adding that the company invested its “time and energy” … in a way that we believe we can do well in those markets, and this one Bring business back to the top. Line growth. “
HBO Max, part of AT & T’s WarnerMedia division, is a focal point for the company.
Stankey said he sees reasons to be optimistic and believes new subscribers will continue to flock to the streaming service.
AT&T on Friday increased its subscriber forecast for HBO Max and HBO and forecast between 120 million and 150 million global subscribers for HBO Max and HBO by the end of 2025. By the end of fiscal 2020, global subscribers for HBO reached nearly 61 million Max and HBO and US subscribers 41 million, aided by the release of Wonder Woman 1984 on Christmas Day.
“We grew faster in the last seven months of last year than in the last decade,” said Stankey.
The company plans to roll out HBO Max in Latin America and later in Europe. “Add to this the exciting development of introducing an ad-supported option for customers [in June]This expands the ability domestically in the US to attack price points that we have been excluded from, “he said.” The team feels really good about their dynamics. We haven’t seen our best days. “
AT & T’s new forecast suggests Netflix recently surpassed 200 million subscribers in the fourth quarter of 2020 and Disney’s streaming service Disney + surpassed 100 million subscribers just 16 months after its launch.
Stankey also said he was pleased with the recent performance of WarnerMedia’s Turner division, which includes TNT and CNN, among others. The latter comes from a “record year, record valuations, record earnings,” he said.
“We have very capable people who have done a good job of positioning these assets so that they are even relevant to what I would call the shrinking dynamics of the cable bundle – not just shrinking from a subscriber base, but shrinking in terms of The number of channels relevant to a takeaway customer are shrinking, “he said.
– CNBC’s Sarah Whitten contributed to this report.