Is Now The Time To Buy Into CenturyLink’s Generous Yield?


INTRODUCTION:

CenturyLink (CTL) surprised the market on February 13 by reducing the quarterly dividend to 54 cents from 72.5 cents per share.  Why? Cash taxes are expected to increase substantially starting in 2015.  The problem is not unique to CTL.  Windstream (WIN) faces a similar problem in 2014 (discussed here). The difference between the two companies is while CTL reduced the dividend, WIN management is adamant they can maintain their dividend in the face of a substantial debt load, high leverage ratio and high FCF (free cash flow) payout ratio.  Was reducing the dividend a sound strategy and if so, is now the time to invest in CTL?  The current yield hovers around 6%. We’ll present an overview of the company in an attempt to provide an answer. The discussion includes:

  • Revenue stability
  • FCF (Free cash flow) and the new capital allocation strategy
  • Debt
  • Pension and Post-Retirement Benefits
  • Industry Comparison
  • Valuation
  • Conclusion

Financial data used for this article can be found here.

REVENUE STABILITY:

One problem the wireline industry faces is declining revenues.  We’ll look at the pro forma revenue (includes Qwest and Savvis) and measure management’s performance using a “best fit” regression analysis. The curve reflects management’s efforts going forward based on performance over the last 2 years:
…Click Here to continue reading the complete article…

Advertisements

About IIEX

Click "About" in the menu at the top for more information about the author. We also have a page at "Seeking Alpha" ( http://seekingalpha.com/author/david-klein ). Please Click on and read the "Disclaimer" in the menu at the top. Have a question? Contact us at iiex@live.com.
This entry was posted in CTL, FTR, Stocks, WIN and tagged , , , , . Bookmark the permalink.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s