Dividends in Danger: CenturyLink

CenturyLink (CTL)has been generating some dividend cut discussion. Although it has a 37-year dividend-growth streak, key worries are integration risk from a couple of mergers and a high payout ratio of earnings. Additionally, CTL missed its dividend-increase anniversary in March, but it has done this before and still kept its streak alive. On the positive side, the payout ratio of free cash flow (FCF) is just 50%. Also, ROE and some other metrics don't flag a CTL dividend cut, and management has stated that they can do the mergers and maintain the dividend.

In 2008, when CTL's board boosted the quarterly dividend by more than 10x, it stated its intention to pay out "essentially all" of its FCF to shareholders rather than basing its payout ratio on earnings per share. The company then went six quarters before raising the dividend, and it may be on track for another six-quarter period between increases. While there may be no imminent danger of a cut, future increases may not be substantial. CTL’s last increase, in March, 2010, was 3.6%. Its yield is already high at about 7.3%.

Source: Seeking Alpha

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