AT&T Answers Higher Dividend Tax Rates with Premature Dividend Hike

AT&T Inc. (NYSE: T) outlined its capital spending plans for the next three years this morning. The moves look to be bold to expand wireless, LTE and even U-verse. What was buried down in the release was that AT&T is raising its dividend as well.

We were expecting the dividend to be raised. We just put out a list of the next big dividend hikes coming very soon, and AT&T was on that list. But we were not expecting the dividend hike to be announced for another month or so. This will be the 29th consecutive year of dividend hikes, and the rate will go from $0.44 per share per quarter up to $0.45.

Its capital spending plans will be to invest $14 billion over the next three years. On the spectrum, AT&T said that it has acquired spectrum through more than 40 deals this year. Some are pending regulatory review, and the company is planning to make more acquisitions of wireless spectrum to support its 4G LTE network.

Earnings per share is being projected by AT&T to grow in the mid-single-digit or better range, but AT&T also said that there is an opportunity for stronger growth going forward. Consolidated revenues will grow to GDP plus 100 basis points. AT&T expects that growth in wireless, wireline data and managed IT services will grow to 90% of total revenues by 2016, versus about 80% today.

Over the next two years, AT&T expects its net-debt-to-EBITDA ratio to move from 1.42 at the end of third-quarter 2012, up to the 1.8 range, aligning with lower interest costs and debt capacity. The company expects this ratio to trend back down in 2015. AT&T also said that it is going to tap the capital markets for the low interest rates.

Back to that dividend and to buybacks. AT&T's press release on Wednesday signaled that the company will boost its capital intensity to the high end of the mid-teens as a percentage of revenues in the next two years, returning to normal levels in 2015 with capital spending to be approximately $22 billion for each of the next three years. That leaves the rest for debt servicing and then return of capital:

AT&T expects to complete in 2012 its December 2010 share repurchase authorization of 300 million shares and to continue to buy back shares as market conditions allow under its July 2012 300 million share repurchase authorization. Through October 19, 2012, AT&T had repurchased 271 million shares. AT&T's board of directors increased the quarterly dividend rate from $0.44 to $0.45 a share on a quarterly basis, which would be an increase from $1.76 to $1.80 a share on an annualized basis. The dividend will be payable on Feb. 1, 2013, to common stockholders of record on Jan. 10, 2013.

AT&T shares are lower by 2.3% around $34.00. This drop is partly due to higher debt and higher cap-ex, but it is also because the election puts AT&T in the tax sniper zone as its high dividend will likely face higher tax rates in 2013 and beyond.

JON C. OGG


Filed under: 24/7 Wall St. Wire, Dividends & Buybacks, Telecom & Wireless Tagged: T

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