Are CenturyLink, Windstream, and AT&T Dividends Secure?

Dividend sustainability analysis is crucial for income-seeking investors. Can these companies live up to your expectations?

May 5, 2014 at 4:15PM

Owing to the lackluster industrywide growth and its dismal outlook, several telecom companies reluctantly slashed dividend payouts last year. The investing community, consequently, began to question the sustainability of dividends paid out by CenturyLink (NYSE:CTL) and AT&T (NYSE:T).

But, investing is more about foresight than hindsight. The good news for CenturyLink and AT&T investors -- in light of the companies' recent financial performance -- is that their current dividend yields of about 6.2% and 5.2%, respectively, appear sustainable and secure. 

Ample cash flows
Analyzing a company's dividend burden is first step in gauging the sustainability of its future payouts. CenturyLink, for instance, paid out $1.3 billion in cash dividends and generated about $2.5 billion in free cash flow over the last twelve months. Its healthy dividend cover of 1.92 times suggests that the telecom giant has been rewarding its investors comfortably. 

 

AT&T

CenturyLink

Windstream

Free Cash Flow Payout*

73.8%

52%

87.5%

* Calculated using (TTM dividend payout/ TTM free cash flow)

AT&T, on the other hand, distributed about $9.59 billion in cash dividends while generating about $12.99 billion in free cash flow over the last 12 months. Its free cash dividend coverage of 1.35 times isn't as impressive as CenturyLink's, but considering AT&T's sheer size and its ability to consistently generate stable cash flows over the recent years, its payouts appear sustainable and secure. 

Windstream Holdings (NASDAQ:WIN), unlike its peers, doesn't appear to be in a financially solid position. Its TTM free cash flow and dividend distribution aggregate to $678.4 million and $593.6 million, respectively. With a paltry dividend cover of just 1.14 times, its future dividend distributions will be susceptible to cuts in case there are downside fluctuations in operating and free cash flows. 

Favorable debt position
Understanding a company's capital structure is another rewarding practice in dividend sustainability analysis. As illustrated in the table below, AT&T has well-funded bank accounts with the least percentage of leverage. This ensures that the company's interest expenses do not pose a threat to its dividend payouts.

Company

ST Debt/Equity*

Total Debt/equity

Cash & Equivalents

AT&T

9%

88%

$3.6 billion

CenturyLink

5%

122%

$168 million

Windstream

10%

10.36%

$48.2 million

* Short Term Debt/Equity

Regarding CenturyLink, even though it is slightly more leverage than AT&T, I believe it's in a financially sound position. Its minimal short-term liabilities allow the telecom giant to distribute its cash flow more generously and comfortably in the form of common stock dividends. Plus, its healthy dividend cover makes up for its limited cash and equivalents.

Windstream, however, has gigantic debt load and carries little cash and equivalents. This suggests that the company can run into financial troubles and slash dividends if ongoing business recovery faces a speed bump.

Investing in growth
Investing in growing companies helps secure future dividend income as well. As illustrated in the table below, CenturyLink and AT&T are heavily investing in growth opportunities to ward off intensifying market competition and sustain growth momentum.

Year-over-Year Change (mrq)

Company

Capital Expenditure

Revenue

CenturyLink

12.05%

0.38%

AT&T

5.6%

1.25%

Windstream

(23.5%)

(1.87%)

Evidently, these investments helped both companies stabilize their top line in their recent respective quarters. In contrast, several telecom companies -- including Windstream -- posted revenue declines in recent quarters, partially due to their respective capital expenditure cuts.

Foolish final thoughts
Clearly, CenturyLink and AT&T seem to offer sustainable dividend payouts in the future, while Windstream does not. Since this analysis is based on only prior financial performance and dividend cushioning, investors might want to take a closer look at the business operations of each of these companies to the gauge the growth aspect of their investments as well.

These dividends are secure
The smartest investors know that dividend stocks simply crush their non-dividend paying counterparts over the long term. That’s beyond dispute. They also know that a well-constructed dividend portfolio creates wealth steadily, while still allowing you to sleep like a baby. Knowing how valuable such a portfolio might be, our top analysts put together a report on a group of high-yielding stocks that should be in any income investor’s portfolio. To see our free report on these stocks, just click here now.

Piyush Arora has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. 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 Motley Fool has a disclosure policy.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.

 


Compare Brokers