In addition to spinning off WarnerMedia, AT&T recently announced that it was reducing its dividend. This negatively impacts the telecom giant’s shareholders, many of whom are AT&T employees.
A dividend is the distribution of some of a company's earnings to shareholders, typically in the form of cash. Why this is a concern for AT&T employees is because the AT&T 401(k) company match is automatically invested in the AT&T Shares fund, which is 100% AT&T stock.
So, employees who participate in AT&T’s 401(k) plan are shareholders and recipients of the AT&T dividend.
How big is the AT&T dividend cut?
Reports indicate that AT&T will cut its dividend nearly in half, from a 6.5% yield to around 3-4% by sometime in 2022.
As an AT&T employee, what does that exactly mean for you?
The AT&T dividend cut is just one more reason why we generally recommend employees to sell their AT&T stock.
Having too much of your 401(k) savings invested in AT&T stock is a big risk. After all, you don’t want most of your financial life to be dependent on the performance of one company. That includes your current income and retirement income from the AT&T pension and AT&T 401(k) plan.
Further, a single stock is riskier and more volatile than a mutual fund or the broader stock market. And that can mean lower investment returns. Just look at the recent performance of AT&T stock compared to the stock market over 3- to 20-year periods:
As an AT&T employee, your 401(k) should be properly diversified among a variety of investments, including stock and bond funds. It’s the investor’s way of not putting all your eggs in one basket. Diversification can reduce your investment risk, provide steadier returns and increase your opportunities for earnings.