Thursday, March 10, 2011

CenturyLink a Dividend Aristocrat Analysis

CenturyLink (CTL) is another one of the Dividend Aristocrats that we have in our business world.  They have consistently paid dividends for over 35 years straight and they are in the Telecommunications industry.  I am a huge follower of dividend aristocrats and I am excited to see some financials this company has to offer.

Price to Earnings Ratio or P/E: CTL closed today at $40.35.  They have earnings per share in the amount of $3.13.  Therefore, 40.35/3.13 = 12.89 P/E Ratio.  Relatively lower than the overall S&P 500, showing a possible undervaluation.  I then went to my usual Morning Star source to see how they compare with their industry as a whole, as they go up against other phone and internet providers such as AT&T.  It turns out the industry average is roughly 15.9; thus Century Link is undervalued compared to it's competitors.  Let check out some appreciation.

CenturyLink's 52 week high, as of today, is $46.87.  From solely this figure, they could have $6.52 of room to grow or a little over 16%.  Therefore, there is some room to grow, but that isn't what we are really here for.  I mean of course we want a company that has growth, but we need some cash flow.  Lets go see their yield.

Dividend Yield & Payout: They pay a quarterly dividend of $0.725 per common share.  Over four quarters this amounts to $2.90 annually per common share of stock.  Therefore, CenturyLink's dividend yield is an enormous ($2.90/$40.35) 7.18%.  Wow!  An over 7 percent dividend yield to their investors, this is double the amount of 10 year treasury interest yields and of course much higher than the stock market as an average.  Well, I have done some history on them, and a few years ago (2007) that $2.90 used to only be $0.26.  That's right, only 26 cents per share PER YEAR.  They would only raise it a smidge every year.  However, after 2007 they skyrocketed their dividend.
Century Link's payout ratio is 2.90/3.13 = 92.6%.  This is pretty high.  It isn't uncommon to have a high payout ratio for telecommunication companies, but I don't really enjoy the looks of an over 90% payout ratio.

Conclusion:  Though CenturyLink is an aristocrat, there are a few flags that stand out.  That dividend payout is extremely high.  How long can they sustain such a high rate?  Do they have the earnings to grow the company further?  With only a 12B market cap and with competitors that are humungous, where do they go?  Their dividend yield is extremely attractive and you do also have to give a nod to the fact they have raised dividends for over 35 years straight, and not many can fall into this category.   Also to note - their current ratio (current assets dividend by current liabilities) is barely 1.  I like to see at least 2, to show their solvency.  One would have to consult, without a doubt, a further analysis on CenturyLink before deciding to take any action.

-Lanny B.

Disclosure: I do not recommend anything, please consult your own research. This is actual data, analysis, however I base no investor recommendation.  Thank you for your understanding.

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  1. Hey Lanny- I know you from working with the Buchtelite. I've been thinking about breaking into the stock market, but know basically nothing about it. I'd be very interested in hearing a blog post for people who know basically nothing about investing or where to even begin for that matter (which is the boat I'm in...) I don't have much money to invest, and I don't know what would be stable to invest in with our current economy, or what would prove lucrative for that matter.... or when to know when I should sell. I'm interested in two possibilities: Earning money over time for my future (perhaps to put into a house, car, childrens' college, or retirement...) or a more immediately lucrative solution (I go on very expensive "vacations" to see my out-of-country boyfriend once every other year... any recommendations to create an income towards this would be appreciated.)

    I know there's some fantasy stock games out there, but they go so slow that it's hard for me to realize the big picture... if there were a faster tool to understand the trends, I guess it would be easier for me to catch on...

  2. @MJB
    -Hey there how are you doing? I definitely appreciate you stopping by and reading the blog, as well as the buchtelite - it is truly appreciated. Thanks to your contribution, I know have a specific blog post to write about - How to invest? Where to Invest? What to Invest? and How to Start? I will work on that over these next 2 days or so.

    Also - if you are interested in earning $$ right now towards your future and to help ease the pain of the expense traveling abroad trips - you can check out my other site:
    It's a great site that shows ways to earn money online. If you have any question about anything - don't hesitate to e-mail me, message me, facebook me etc.

    Hopefully I will have the article come out shortly on here about investing. Thanks again and hope to hear from you soon!

    -Lanny B

  3. That sounds excellent. I'll stay tuned.

    I'll definitely check out your other site as well. I am definitely interested in making some cash now; it's hard to keep your head above the water sometimes as a college student.