This Dividend King Could Lose Its Throne

Sometimes, all it takes is a single mistake to undo years of hard work and success. With dividend stocks, such a mistake can end up costing you a big chunk of your investment.

Unfortunately, among the top echelons of dividend-paying stocks, there's one company that's currently on the brink of a big fall from decades of grace. Later in this article, I'll reveal its name. But first, let's look at the background of this dividend king so we can figure out if our concerns are truly justified -- and what impact this fall could have on current shareholders.

The upper crust of dividend stocks
In a shaky stock market, dividend stocks have gained the respect and admiration of millions of investors. Their cold, hard cash payouts represent certainty in an uncertain world, and their ability to make those payouts shows that these businesses have what it takes to endure no matter what the financial markets throw at them.

Yet even among dividend stocks, there's a clear hierarchy. While getting any payout is a good sign, stocks that consistently grow their dividends over time deservedly get even more attention from dividend investors. Those that manage to put together a 25-year track record of steadily increasing their dividends every single year earn what's arguably the top status symbol among dividend stocks: membership in the Dividend Aristocrats.

Given the rarefied air that these stalwart dividend payers inhabit, it's noteworthy whenever a new stock makes it onto the list. But what's even more noteworthy -- not to mention worrying -- is when a Dividend Aristocrat falls off the list. That's the potential catastrophe that CenturyLink (NYSE: CTL  ) finds itself facing right now, and it has just one more chance to remedy the situation before it loses its status as a top dividend stock.

What's going on?
Like fellow rural telecoms Frontier Communications (NYSE: FTR  ) and Windstream (Nasdaq: WIN  ) , CenturyLink faces the challenge of having much of its revenue come from its landline business, which most people fear will eventually become obsolete. But CenturyLink has taken an aggressive strategy in an attempt to boost cash flow growth -- which is the source of its dividends. Having acquired both Qwest Communications and Savvis earlier this year, the company is trying to go beyond its landline business in search of sustainable opportunities.

Given that CenturyLink made no mention of raising its dividend in its earnings report earlier this week, the company is running out of time. Last year, the company declared its fourth-quarter dividend on Nov. 9, so we should have final word soon. Until then, shareholders will have to wait for what could be the end of an era for the Dividend Aristocrat.

Is it really that bad?
Even if the company breaks its streak, however, investors should look at the bigger picture. Just three short years ago, the stock paid a tenth of the dividend it does now. Even with no increase, CenturyLink's current 8%+ yield dwarfs telecom giants AT&T (NYSE: T  ) and Verizon (NYSE: VZ  ) .

Moreover, dropping off the Dividend Aristocrats list doesn't instantly doom a stock to huge losses. Integrys Energy, which broke a 51-year streak last year, has risen 6% since then. Eli Lilly (NYSE: LLY  ) is up 13%. And while SUPERVALU (NYSE: SVU  ) is down sharply, it's hard to blame the grocery operator's recent woes on a dividend cut that happened early in 2010.

Nevertheless, it's always a shame when a company can't keep its upward dividend momentum after decades of successful growth. If we're lucky, perhaps the company will give shareholders a nice surprise when it makes its quarterly dividend announcement. Either way, though, investors should look past the Aristocratic short-term implications and judge CenturyLink on its own merits.

Some of the best dividend stocks in the market are only beginning to build good streaks of payout increases. Join the growing crowd of Fools who've found out about 11 smart dividend picks for your portfolio in this new free special report.

Fool contributor Dan Caplinger always roots for the streak to continue. You can follow him on Twitter here. He doesn't own shares of the companies mentioned in this article. The Motley Fool owns shares of SUPERVALU. Motley Fool newsletter services have recommended buying calls in SUPERVALU. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool's disclosure policy pays the best dividends.


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