CenturyLink (NYSE:CTL): Losing its Throne in Perspective?

CenturyLink CenturyLink Inc. (NYSE:CTL) is an integrated communications company that offers a range of telecommunications services, including telephony, Internet access and broadband services. CenturyLink merged with Denver-based Qwest in April 2010. The transaction is effectively a acquisition from Qwest by CenturyLink by exchange of shares.

CenturyLink currently offers a dividend of over $8%, significantly higher than its long-term average of $6.2%. The company has managed to increase its distributions by 87% per year in the medium term, which is remarkable, but it has also continued to grow for 37 years. The problem for CTL is that it will be difficult to maintain this dividend growth.

Cash payments represent certainty in an uncertain world, and the ability of companies to make those payments is evidence of the robustness of their business models. Among dividend-paying stocks, there is a clear hierarchy. Stocks that consistently increase their dividends over time attract investors’ attention. Those that can put together a 25-year track record of successive increases earn what is arguably the most powerful symbol among dividend stocks: the accession to the rank ofdividend aristocrat. As exciting as it is when a new title achieves this status, it is worrying when it loses it. This is the potential catastrophe that CTL is facing right now, and the company has one last chance to remedy the situation before losing its throne.

CenturyLink has not indicated that it plans to raise its dividend so far. It has remained unchanged at $0.725 since the first quarter of 2010, and there is only one more distribution this year for the 2011 dividend to be higher than 2010. Last year, the company declared its fourth-quarter dividend on November 9, so we should have the answer soon.

Even without an increase, the current efficiency of 8% remains more than respectable.. Still, it's always a shame for a company to fail to maintain its upward momentum after decades of successful growth. If we're lucky, maybe the company will give shareholders a nice surprise when it announces its quarterly dividend. THE distribution ratio 143%, however, leaves us with few illusions.

So What? We bought CTL in April 2010, as our algorithm gave us a strong buy signal at the time, thanks in part to the high average annual dividend growth. In the meantime, earnings per share fell sharply, causing the stock to explode. distribution ratio and which makes any increase in distributions this year practically impossible. The situation is not dramatic because despite the crisis on the financial markets, profitability in CHF is in fact -6.37% and +10.26% in EUR. In addition, many would be satisfied with a dividend yield of 8%. However, The risk of dividend stagnation is a warning signal that should not be ignored.

CTL's experience has led us to add firewalls to our algorithm since the 3rd quarter, particularly in relation to distribution ratio and to average annual dividend growth rate. We should therefore avoid such situations in the future. Since these adjustments, the stock has gone from a strong buy signal to a stock to watch/hold. Whether the company announces that it is increasing its dividend or not in the coming days, CTL is now on probation. To be continued...

Sources: dividendinvestor.com, fool.com, dividends.ch