CenturyLink cuts dividend by >50%

[24601NoMore]

Any other CenturyLink (CTL) holders here? Wondering what you guys think of the dividend cut this week (from $2.16 to $1.00 annually), especially after management assured their investors multiple times in 2018 and even as recently as December (!) that they were "comfortable" with the existing dividend.

This hit us pretty hard (to the tune of 10% of my expected yearly income) as we held a somewhat sizable position in CTL. (Long story - we accumulated quite a bit of LVLT over the years which got acquired by CTL). So, I now have to figure out how to replace 10% of my expected income for the next 5 years until SS kicks in for DW.

I know it's not the smartest thing to hold that much of your portfolio or income stream in one stock, but management did ASSURE the investors pretty much constantly that the dividend would remain intact - then, the dirty rotten &*%^&!s went and did the exact opposite - literally less than 3 months later. There's gotta be some SEC regs against doing that and I personally hope the execs get sued to kingdom come, so undoubtedly some serious class action lawsuits are being put together and will hit them soon. Even better if they wind up being held accountable by the SEC (jail or very hefty fines would be nice), but I'm sure I'll see a purple unicorn stroll by my window before that would ever happen.

 

[leftymd]

CTL

Been a CTL holder since LVLT merger a few years ago. Was happy w/ the dividend but always doubted it could be sustained. The current 7.5% yield is still somewhat inviting. Nice bounce back on Friday after Thursday drop. Still would entertain adding to position under 12.50.

- Lefty

 

[Sunset]

As the CEO of CTL said and I'm paraphrasing: We think giving shareholders 15% is just too much money as a dividend. We have better ways to waste the money.

Those are the type of surprises that really annoyed me when I would buy individual stocks. So now the majority of our $$$ is in broad ETF's, so I don't get slammed by some jerk CEO

 

[24601NoMore]

Been a CTL holder since LVLT merger a few years ago. Was happy w/ the dividend but always doubted it could be sustained.
- Lefty

Yeah, but management (first CFO Patel then Dev and also CEO Storey) repeatedly told us they had plenty of FCF to continue to pay the dividend at current ($2.14/sh) levels. Storey also went out of his way to previously say "we don't have a yield problem..we have a stock price problem" (ie: if the stock were trading at more traditional levels of mid 20s-low 30s, the yield became much more reasonable on a % basis). So why now, all of a sudden did the yield become a problem when it wasn't previously?

Management even went out of their way at an investors conference in December to show how FCF would continue to pay the dividend at current levels for years to come. And, there is no major debt due until several years out. They did not "have" to cut the dividend for any good reason and essentially LIED OUTRIGHT to the shareholders as recently as December. Dirty rat b*^&^s...I seriously would like to see them at a minimum be hit with very significant fines..even better if someone were to wind up behind bars, but we don't seem to enforce many of the laws we have anymore nowadays..

The upcoming annual meeting is going to be...interesting..to say the least. I hope these guys get absolutely HAMMERED by the shareholders..they deserve it. Far as I'm concerned, management has ZERO credibility at this point.

 

[24601NoMore]

Those are the type of surprises that really annoyed me when I would buy individual stocks. So now the majority of our $$$ is in broad ETF's, so I don't get slammed by some jerk CEO

Any suggestions for good ETFs with decent (>4-5%) yield?

 

[audreyh1]

A good quality high dividend yield ETF like VYM is currently yielding around 3.3%. If you try to push beyond that you are taking on more risk.

 

[Chuckanut]

My suggestion is to invest for total return.

Money is fungible

 

[Sunset]

Yeah, but management (first CFO Patel then Dev and also CEO Storey) repeatedly told us they had plenty of FCF to continue to pay the dividend at current ($2.14/sh) levels. Storey also went out of his way to previously say "we don't have a yield problem..we have a stock price problem" (ie: if the stock were trading at more traditional levels of mid 20s-low 30s, the yield became much more reasonable on a % basis). So why now, all of a sudden did the yield become a problem when it wasn't previously?

Management even went out of their way at an investors conference in December to show how FCF would continue to pay the dividend at current levels for years to come. And, there is no major debt due until several years out. They did not "have" to cut the dividend for any good reason and essentially LIED OUTRIGHT to the shareholders as recently as December. Dirty rat b*^&^s...I seriously would like to see them at a minimum be hit with very significant fines..even better if someone were to wind up behind bars, but we don't seem to enforce many of the laws we have anymore nowadays..

The upcoming annual meeting is going to be...interesting..to say the least. I hope these guys get absolutely HAMMERED by the shareholders..they deserve it. Far as I'm concerned, management has ZERO credibility at this point.

Imagine a 200 Million dollar fine.... The problem with that is the company pays it, so that means you the shareholder pay the fine.
It is pretty amazing how here, CEO's can do just about anything in the company name and never face jail time, not that I think this lying/reconsideration deserves jail.
But I compare this to China where executives have been executed for their actions.

 

[leftymd]

CTL vs LVLT

I was quite enthused when Storey took over for Crowe as LVLT CEO about 5 years ago. Crowe did little if anything to make LVLT prominent as CEO. Luckily they managed to hold onto CFO Sunit Patel when he was about to leave and he & Storey managed to keep the LVLT ship afloat.

Where have you gone Benie Ebbers

 

[ERD50]

A good quality high dividend yield ETF like VYM is currently yielding around 3.3%. If you try to push beyond that you are taking on more risk.

+1

My suggestion is to invest for total return.

Money is fungible

+1

Imagine a 200 Million dollar fine.... The problem with that is the company pays it, so that means you the shareholder pay the fine. ....

So true. Many of these dividend investors just do not seem to realize that those dividends effectively come out of the price of the stock. There is no magic. So as you say, if you fine "the company" for not paying the dividend, or force them to pay an unsustainable dividend, you are just pulling that money out of the stock (that you own).

Robbing Peter to pay Paul.

-ERD50

 

[samclem]

General observation: If a retiree feels compelled to monitor the shareholder meetings and the corner-office comings-and-goings of a company he's invested in, he might have an allocation to that stock that is too high.

 

[NW-Bound]

Aye, aye, aye...

I try to stay diversified, and have no more than 5% in any individual stock. However, I may have a lot in one sector, and that did hurt plenty at times. But when the sector is hot, mucho mucho money (but it did not last ).

 

[Freedom56]

Any other CenturyLink (CTL) holders here? Wondering what you guys think of the dividend cut this week (from $2.16 to $1.00 annually), especially after management assured their investors multiple times in 2018 and even as recently as December (!) that they were "comfortable" with the existing dividend.

This hit us pretty hard (to the tune of 10% of my expected yearly income) as we held a somewhat sizable position in CTL. (Long story - we accumulated quite a bit of LVLT over the years which got acquired by CTL). So, I now have to figure out how to replace 10% of my expected income for the next 5 years until SS kicks in for DW.

I know it's not the smartest thing to hold that much of your portfolio or income stream in one stock, but management did ASSURE the investors pretty much constantly that the dividend would remain intact - then, the dirty rotten &*%^&!s went and did the exact opposite - literally less than 3 months later. There's gotta be some SEC regs against doing that and I personally hope the execs get sued to kingdom come, so undoubtedly some serious class action lawsuits are being put together and will hit them soon. Even better if they wind up being held accountable by the SEC (jail or very hefty fines would be nice), but I'm sure I'll see a purple unicorn stroll by my window before that would ever happen.

I don't own Centurylink stock (or any stocks for that matter), but I do own a lot of Centurylink bonds (2024 7.5%, 2028 6.875%, 2031 7.75%) that were all purchased well below par with YTMs over over 9%. I'm surprised that they did not cut the dividend after the merger as the number of shares almost doubled. I think it was prudent move to cut the dividend and pay down debt and the market thinks so also as the bonds have moved up after the announcement. Their new leverage target will lead to an investment grade rating assuming also that they execute on their grown plan. Over the past 4 years I have had 4 of my Qwest/Centurylink baby bonds called (CTQ, CTW, CTX, CTU) and buying them below par not only protected my capital, but I realized a gain when they were called. Lost in the noise is the fact that their earnings were not that bad from a bond investors point of view. Their forward guidance was not that bad either. Don't forget they have the best internet backbone on the planet. Just about every internet provider pays them a toll. As bandwidth demand grows, so do the toll receipts. As a bond investor, I'm looking at interest coverage and a business where there is enough demand of their products to sustain those payment. Also consider that Jeff Storey is a prudent business man. He is moving quickly to cut costs and exit low margin business and forsaking revenue. Level 3 management is running the show and they are traditionally wholesale and enterprise focused. Also keep in mind that Level 3 never paid a dividend and the stock performed well under the leadership of Jeff Storey. Don't be surprised if they sell the consumer side of the business. The primary reason for the merger was to combine the Level 3 and Qwest fibre network and become the largest Tier 1 ISP and become an enterprise focused company. Equity investors should think twice about the strategy of buying common stocks for dividend income. Individual bonds (not bond funds) and investment grade preferred stocks are really better for income investors as bond interest payments are a contract between the bond holder and the issuing corporation.

 

[Al18]

Sorry to hear CTL cut it's dividend. I don't own any CTL. A quick check at dividend.com shows a dividend yield of 15.72% and a payout ratio of 201.9%. These numbers should have been red flags for all CTL owners. Rule of thumb is companies cannot sustain a payout ratio of greater than 50%

 

[Brat]

I use Centurylink internet and I am sick of their dropping service intermittently over the last several months. If they need cash to fix their networks they had better get with it else users will flee their service.

 

[big8pointer]

"Any suggestions for good ETFs with decent (>4-5%) yield?"

Take a look at PFXF and PFFD ETF's that hold preferred shares. Good for income with low expense fee.

 

[GravitySucks]

I use Centurylink internet and I am sick of their dropping service intermittently over the last several months. If they need cash to fix their networks they had better get with it else users will flee their service.

Most have no where else to go. The big lie of the open market no regulation needed.

Did not think CTL dividend was sustainable at that rate. Just like I thought FTR divvy was unsustainable.

 

[Freedom56]

"Any suggestions for good ETFs with decent (>4-5%) yield?"

Take a look at PFXF and PFFD ETF's that hold preferred shares. Good for income with low expense fee.

I'll give you some valuable advice, stay away from Global X funds. They are the shortest ticket to losing your capital. Their preferred funds are perennial losers. Look at their returns over the past 5 years. Just horrible! For that matter most of their funds are perennial losers.

 

[Surewhitey]

I have owned them since the last dividend / many years ago. They cut it almost in half the last time. I have not added more to that position rather I have purchased a lot of AT&T to diversify within the Telecom sector. I feel a little better on the AT&T payout as I believe it's a much lower percentage of profits as a dividend payment.

I also have traded in and out of CTL over the years so my losses are not as bad as the numbers say. It still sucks that the stock price has underperformed so badly.

Regarding ETFs with a dividend PAYMENT, VDE & VOX seem to have about a 2.5% dividend. They are the energy and telecommunication ETFs with Vanguard.

 

[big8pointer]

I'll give you some valuable advice, stay away from Global X funds. They are the shortest ticket to losing your capital. Their preferred funds are perennial losers. Look at their returns over the past 5 years. Just horrible! For that matter most of their funds are perennial losers.

As a followup, Global X launched PFFD in Sept. 2017. They have been steady $.11/share dividend payout since then. I am receiving 6% yield on my shares with low expense fee compared to other preferred ETF's, so I decided to pick up some shares.

The question was asked for ETF to supplement income. I responed with 2 ETF's... the poster could do his/her own due diligence and make decision onhow to invest.

Thanks for the advice anyway, much appreciated.

 

[24601NoMore]

Sorry to hear CTL cut it's dividend. I don't own any CTL. A quick check at dividend.com shows a dividend yield of 15.72% and a payout ratio of 201.9%. These numbers should have been red flags for all CTL owners. Rule of thumb is companies cannot sustain a payout ratio of greater than 50%

Would typically agree with that, but CTL execs were on record as recently as December saying they were at around a 70% payout and were comfortable with that for the foreseeable future - which most (including big brokerage house analysts) took to mean until at least 2020/2021..(also, keep in mind that CTL was ~$28 at the time of the buyout, so $2.14 was a much more reasonable yield in terms of pure percentages @ ~7.6%). And it was Storey himself who said they "did not have a yield problem..they had a stock price problem".

Several of the analysts sounded REALLY tweaked off on the IR call Weds night because of how badly this was handled (saying in December that all would continue and < 12 weeks later doing a complete 180)..especially the BofA guy who basically called BS on their "need" for additional capital. Storey basically totally dodged his (very reasonable) question of what they plan to do with the additional $$s and he cut him off by saying they could "take it offline". Must be nice to get some insider info that the rest of us aren't privvy to. I'd like to know the answer also..

FWIW, we did not PLAN to wind up with this much CTL and I would have never bought it on the open market. We had a fair amount of LVLT and got 1.4286 shares of CTL plus $26.5 in cash for every share of LVLT as a result of the acquistion. When we saw that it was paying a $2.16 annual dividend, that became a very timely income stream that albeit, we did not have previously, but which I did see as a very helpful quarterly payout that would pay a good chunk of the bills in ER. I purposely didn't sell it BECAUSE of the dividend, and management's constant assurances that it would remain intact for the forseeable future..lesson learned, I guess, but now I need to make up a good pile of $$ that is no longer in the 2019 and out years retirement income..

 

[Chuckanut]

But I compare this to China where executives have been executed for their actions.

Though I am not a fan of the death penalty, but can be argued that some deserve it. For example, take the guys and gals who sold adulterated baby formula that killed some infants. IIRC, it took six weeks to get through the trail and to the execution. That said, executing CEO's because they made a bad business decision is not going to do much for free market capitalism.

 

[foxfirev5]

A good quality high dividend yield ETF like VYM is currently yielding around 3.3%. If you try to push beyond that you are taking on more risk.

Yes indeed. I am finding that my total income portfolio of dividend equity ETF's
/ CD's and bond funds are all coming in around 3-3.3% yield. This is also the max I would use for withdrawals.
In the interest of full disclosure this is also separate from our Roth IRA's which are 100% broad market equity funds.

 

[Freedom56]

Several of the analysts sounded REALLY tweaked off on the IR call Weds night because of how badly this was handled (saying in December that all would continue and < 12 weeks later doing a complete 180)..especially the BofA guy who basically called BS on their "need" for additional capital. Storey basically totally dodged his (very reasonable) question of what they plan to do with the additional $$s and he cut him off by saying they could "take it offline". Must be nice to get some insider info that the rest of us aren't privvy to. I'd like to know the answer also..

I don't think that analyst from BofA, David Barden, had his facts in order. From the transcript of the call he stated:

" Hey guys, thanks for taking the question. I guess let me push back a little bit and say that I think that pretty much everyone that bought the stock from early December, when Neel was at a conference talking about a comfort level in the low 70s payout ratio range bought the stock because of the dividend. And now that you've cut the dividend, you're going to create an incremental billion dollars of cash flow per year, over a three-year timeframe that's $6 billion of cash flow but you only have $3.6 billion of debt over that timeframe maturing all of which trades above par, all of which has a yield that's several 100 basis points below where the new equity yield is going to be. So what is the reason that how do you create value for your equity holders by kind of creating incremental cash flow for which there doesn't really seem to be a lot of immediate uses that are higher and better than returning it to the shareholders either through maintaining the dividend or via a stock buyback program? And the second question is, Jeff, you said that one of the things that informed this decision was that you thought the yield was too high. Obviously, one of the reasons why the yield was so high was the stock had come down because of the stories that came out from soon at leaving, the revenue miss, body language at the conference at the beginning of the year, and really the rumor that the dividend was going to get cut. So the rumor that the dividend was going to get cut informed why the yield is so high. And if you just pay the dividend then the stock would have gone up again. So could you kind of walk me through those two things for people who own the stock for yield? Thanks."

Barden's point was that while CenturyLink has 36 billion in debt, only $3.6 billion matures over the next three years and those bonds are all trading "above par," meaning that bond investors did not appear worried about CenturyLink's ability to service that debt. However according to the Q3 10Q, the long term debt maturities are as follows:

2019 651
2020 1,202
2021 3,115
2022 5,323
2023 and thereafter 25,785

The correct number is $4968 million through the end of 2021 with another $5.3B due in 2023.

CenturyLink doesn't necessarily have to pay all debt when due, and can refinance it with new notes. However, given the the market dislocation in December, it appears management didn't want to take that risk. If a company needs to refinance a lot of debt, there's no guarantee it will obtain the interest rate it likes, and if there's a market crash, debt markets may not be open at all.

CFO Neel Dev stated, "Our view is paying down about a couple billion of long-term obligations per year over the next three years makes sense, but you have a different view."

CEO Jeff Storey stated, "And we can work with you offline, David. "

I believe that statement was to correct his numbers and not to embarrass David Barden for not reading debt payment schedule in the Q3 report . I think they made the right choice to pay more debt off and reduce their leverage.

 

[MichaelB]

The thread was moved to the stock picking forum, where it’s a better fit.