Money

An Unreliable 9.34% Yielder With Hardship Ahead

78 total views

Reliable.

That’s the calling card of most dividend-paying companies.

Many times, they’re in the real estate business or are an established brand. Nothing too flashy… but they’re still willing to reward shareholders with steady payments.

Sometimes, however, there’s a dividend payer doing new and exciting things.

Take telecommunications company Lumen Technologies Inc. (NYSE: LUMN).

Its fiber-optic network is a key component of America’s technological fabric.

On top of this, it currently has a 9.34% dividend yield.

A rising tech force that pays a dividend is too juicy to ignore…

But due to a disappointing earnings report that caused shares to nose-dive, we have to dig a little deeper to make sure this dividend is safe.

Personally, I don’t think investors overreacted to the report.

Lumen’s outlook for the next year – and possibly the next two years – is bleak to say the least.

The company is trying to sell some dying businesses, like traditional phone services, so it can focus on the up-and-coming moneymakers, like its broadband business.

In the meantime, though, Lumen is going to feel a loss from selling $10 billion worth of its assets.

And though Lumen did improve its free cash flow from $2.79 billion in 2020 to $3.6 billion in 2021, it’s expected to generate only $2.05 billion in 2022 – a 43% drop from last year.

Even worse, the company is expected to bring in only $1.45 billion in 2023.

One thing going for Lumen is that it was just awarded a $1.2 billion contract with the U.S. Department of Agriculture to provide it with a wide area data transport service for more than 9,500 locations.

Securing a big contract with the U.S. government is a good way to secure a consistent revenue stream.

But I’m not sure it will be enough to keep this dividend safe.

In its 10-year history of paying a dividend, Lumen has cut it twice already.

The most recent cut was by more than half – from $0.54 in 2018 to $0.25 in 2019.

The company has stated that its dividend payments are a top priority in its budget.

And with a payout ratio of just under 50%, surely it has more than enough to cover it.

Which is why Lumen is such a conundrum…

It is in a lucrative tech space, has deals with the U.S. government and is earning significantly more than it’s paying in dividends…

Despite all that, this dividend is not safe.

The outlook for free cash flow is alarming.

And while Lumen has established itself as a dividend payer, it’s also established itself as a dividend cutter.

Promises of success don’t necessarily translate to being a reliable buy for dividend investors.

So while I’ll definitely keep my eye on Lumen for its prospects in the tech world, I won’t be surprised if it’s forced to cut its dividend, once again, in the near future.

Dividend Safety Rating: F

Dividend Grade Guide

If you have a stock whose dividend safety you’d like analyzed, leave the ticker symbol in the comments section.

You can also check to see whether we’ve written about your favorite stock recently. Just click on the magnifying glass in the upper right corner of the Wealthy Retirement homepage and type in the company name in the box.

Share this Post

About Us

Our mission is to bring retirement news, financial information, and advice to seniors enjoying their golden years.