AT&T's April decision to parcel out its big interest in Warner Bros. Discovery to all shareholders, rather than giving them the option of receiving an equivalent amount of the phone company's stock, has turned out to be a bad move for investors. Warner stock has dropped sharply.

AT&T shares (ticker: T), which ended Tuesday at $18.02, are down just 1% since the spinoff on April 8, topping the returns of those of rival Verizon Communications (VZ) and the S&P 500 index. But that calculation doesn't factor in the Warner stock (WBD) received by AT&T holders.

Warner shares have fallen more than 60% from April 8 to $9.03 on Tuesday after hitting a pro forma 13-year low during the session. The stock has been weighted down by investor concerns about the ultimate profitability of its streaming business, write-downs and the company's net debt of nearly $50 billion. The value of the Warner stock received by AT&T holders has fallen by the same amount, to about $2 per AT&T share. AT&T holders got roughly 0.24 share of Warner for each AT&T share.

AT&T holders who kept the Warner shares, rather than selling them, are getting no income from the latter stock because the media company doesn't pay a dividend.

As AT&T prepared earlier this year to distribute its 71% stake in Warner to its investors, the telecom giant considered whether to do a spinoff—handing Warner stock to all holders—or a split-off that would have involved an offer to let AT&T shareholders avoid getting any Warner stock. Many on Wall Street thought AT&T would choose the split-off because that would have allowed its holders to choose whether they wanted AT&T stock or Warner shares.

AT&T chose the simpler spinoff route. At the time, AT&T CEO John Stankey said the company wanted to execute the transaction in a "seamless manner," and that a spinoff was the best option.

"We are confident the spinoff achieves that objective because it's simple, efficient and results in AT&T shareholders owning shares of both companies, each of which will have the ability to drive better returns in a manner consistent with their respective market opportunities," Stankey said in a February statement.

An AT&T spokeswoman said that the company has nothing to add beyond its comments at the time.

If AT&T had chosen a split-off, investors could have held on to their AT&T stock, and likely would have a security trading around $24 now, with a yield comparable with AT&T's current dividend rate of 6.1%. Instead, they have an AT&T share worth $18, and Warner stock worth about $2 for a total package of about $20 for each legacy AT&T share.

A split-off would have amounted to a giant buyback of AT&T shares funded by AT&T's 71% stake Warner Bros. Discovery stake, which was worth about $40 billion in the spring.

In a February interview with Barron's , AT&T's Chief Financial Officer Pascal Desroches said that in a split-off, the company would have needed to offer too big a bonus in the form of Warner stock for each AT&T share, to encourage investors to take Warner stock. The value "leakage" would have been too great to make the transaction work for AT&T, he said.

"The amount of discount that we would have to provide—we thought it was a bridge too far," Desroches said. "It would have benefited short-term holders at the expense of our large retail shareholder base." Retail investors make up nearly half of AT&T holders and most likely would have opted to keep their dividend-paying AT&T stock.

AT&T might have needed to offer a 10%-plus bonus to its holders to encourage them to take Warner stock, and the immediate beneficiaries might have been arbitragers. But that cost would have been less than what AT&T holders effectively have paid in the drop in Warner stock since April.

AT&T holders could have immediately sold their Warner stock and reinvested in AT&T. Anyone who did so would have AT&T stock now worth about $24 a share—nearly the same result if AT&T had chosen a split-off. It isn't clear how many investors made that move.