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. 





Free Cash Flow Payout*




* 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.


ST Debt/Equity*

Total Debt/equity

Cash & Equivalents




$3.6 billion




$168 million




$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)


Capital Expenditure











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.

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