The screws continued to turn on legacy communications company CenturyLink (LUMN 3.69%) during the final quarter of 2019. Revenues fell year over year again -- albeit at a slower pace than before -- and capital spending to invest in new business services led to lower profits (as measured by free cash flow).

As usual, it was the old consumer-facing business that weighed heavily on results, and there's no new news as to what management has decided to do with the flagging segment. Nevertheless, though the headline numbers weren't great, CenturyLink's high-yield dividend remains on solid footing entering the new decade.

A recap of 2019

CenturyLink's revenue in the fourth quarter declined 3.6% to $5.57 billion, the same rate of year-over-year decline in the third quarter, but a slowdown from the 5.5% and 5% drops in the second and first quarters, respectively. Adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) fell 3.8% in the quarter, but it increased 2% for full-year 2019 as the company let low-profit-margin consumer business (like cable TV and LAN line phone) go and focused on picking up higher profit enterprise and high-speed internet customers.  

Q4 results helped brighten the full-year numbers a bit (revenue declines were reading 5% through the first three quarters), and the company continues to cut costs and streamline operations from its Level 3 Communications acquisition back in 2017.  


12 Months Ended Dec. 31, 2019

12 Months Ended Dec. 31, 2018



$22.4 billion

$23.4 billion


Cost of services and products

$10.1 billion

$10.9 billion


SG&A expenses

$3.72 billion

$4.17 billion


Capital expenditures

$3.63 billion

$3.18 billion


Data source: CenturyLink. SG&A = selling, general, and administrative.  

The cut in basic spending meant CenturyLink was able to execute on two of its primary goals. The first was to pay down long-term debt by about $2 billion (with $32.4 billion left at year-end) and lower its interest expense for 2020 by about $200 million. The second was to put extra money toward capital expenditures to continue its ongoing investment into its fiber-based internet infrastructure and other business services like cloud and edge network computing.

As a result, free cash flow -- what's left after cash expenses and capital expenditures -- was down 21% in 2019 to $3.05 billion. Not a great figure, but it would have been worse if not for the trimming. Besides, $3.05 billion was still more than enough to cover dividends paid of $1.10 billion, a payment that is expected to be maintained in 2020 and is good for a current annual yield of 6.7%.

The back of an internet modem with a yellow ethernet cable plugged into it.

Image source: Getty Images.

If not a rosy outlook, a stable one

As far as 2020 is concerned, no revenue outlook was provided. However, adjusted EBITDA projections of $9 billion to $9.2 billion would imply a 3.8% rise over 2019 at the midpoint. Forecasts for capital expenditures of $3.6 billion to $3.9 billion would be in line with or slightly higher than 2019. Expected free cash flow of $3.1 billion to $3.4 billion would be a 6.5% rebound at the midpoint and cover dividends with about $2 billion to spare. Not too shabby, CenturyLink.  

Of course, all of this outlook assumes nothing is done with the legacy consumer business that keeps dragging down the top line. CEO Jeff Storey said on the earnings conference call that a strategic review has been completed, but conversations with potential buyers are ongoing. Or, the business may be left as-is, as part of the strategic review was to assess what parts of the consumer lines were worthy of working on and which could be let go as contracts expire. Investors will have to sit tight.

At the end of the day, though, it's that dividend that's the attractive part of owning this stock. CenturyLink's business and free cash flow outlook are stable enough that the payment isn't at risk, and for those looking to generate some portfolio income, shares are worth another look after the Q4 2019 report.