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CenturyLink: A Dividend Cut Is 'Logical but Unlikely'


CenturyLink (CTL) has fallen more than 36% this year, and it now yields more than 14%. So it's no surprise then that investors are wondering how safe the dividend really is.

ON-CH561_wirele_D_20171012164315.jpg Getty Images

Oppenheimer's Timothy Horan and  Tom Shaughnessy try to answer that question today.  They reiterated an Outperform rating, although they lowered their price target from $28 to $20, writing that they believe the combination CenturyLink and Level 3 Communications is "transformative" for both companies, and believe patient investors will be rewarded for sticking with CTL shares.

They also like the fact that CenturyLink is working toward becoming a global, enterprise-focused company, which they think is the right move.

Ultimately, they write that a dividend cut may be logical, but it's unlikely:

Management is laser-focused on maintaining its current dividend, and, pro forma, has the FCF to support it. At a 13% yield, it is logical to cut the dividend in half to spend more on network CAPX, but management is unlikely to do so. We now see the payout ratio in the 80% range.

If CTL were to cut its dividend in half, shares would likely trade down to 5.5x FY20E EBITDA, or $11-ish, and have a ~10% dividend yield. If CTL gets more aggressive on enhancing its network, integration and sales, then shares should trade up to the $20 range, or ~6.5X FY20E EBITDA.

CenturyLink is down 1.9% to $15.18 in recent morning trading.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.



This article appears in: Investing , Investing Ideas
Referenced Symbols: CTL


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