Dividend Investing: CenturyTel, Inc. (CTL)

CenturyTel Inc is paying a dividend of over 8%. Is this dividend yield sustainable and is the stock suitable for the conservative investor?

Investing in stocks that pay high dividends is an effective way for the conservative investor whose concern is mainly with the preservation of capital. When investing for a high dividend yield, the most important consideration for the investor is the sustainability of such dividends. Hence research into the underlying dividend payer is crucial.
 
A potentially high-yielding dividend play I recently came across is CenturyTel, Inc. (CTL), which yields a high 8.11% dividend rate at current prices. The company has a $10.7 billion market capitalization and trades on a PE ratio of 13.64.
 
CenturyTel, Inc. is an integrated communications company engaged primarily in providing a range of communications services, including local and long distance voice, wholesale local network access, high-speed Internet access, other data services and video services. The Company primarily conducts its operations in 33 states located within the continental United States. At December 31, 2009, CenturyTel's incumbent local exchange telephone subsidiaries operated approximately seven million telephone access lines in 33 states, with over 75% of these lines located in Florida, North Carolina, Missouri, Nevada, Ohio, Wisconsin, Texas, Pennsylvania, Virginia and Alabama. It also provides fiber transport, competitive local exchange carrier service, security monitoring, pay telephone and other communications, professional and business information services in certain local and regional markets.
 
On July 1, 2009, CenturyTel acquired Embarq Corporation, which substantially expanded the size and scope of the business. Embarq Corporation was recently spun-off from Sprint Nextel (S). The acquisition has made CenturyTel the fourth largest local exchange telephone company in the United States, based on the approximately 7.0 million access lines served at December 31, 2009, all of which are digitally switched.
 
During 2009 the company paid out a $0.70 quarterly dividend and according to it’s 10-K filing, intends to continue this liberal dividend policy. This dividend was subsequently increased to $0.725 in the February 2010 quarter. This total dividend of $2.80 represents a payout ratio of 86%.
 
How safe is the dividend? Cash dividends paid totaled $560 million in 2009, which is covered almost three times by cash generated from operations. The dividend cover, however, which measures earnings per share divided by dividends per share, is 1.15. For comparative purposes, AT&T’s (T) dividend cover is 1.26.
 
Disclosure: None

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Comments

  • JB

    April 09, 2010

    This is the peril of dividend investing.

    Telcos these days are even worse than utilities were in the 80s and 90s. There is no innovation, just a constant billing. But, people always need gas, power, water and they sure as hell don't need fixed line.

    If you need to be in this space, I'd stick with Verizon. It has a strong dividend and has invested enough in differentiated services in wealthy cities that it should be able to pull through for a while. They also have some exposure to the wireless side.

  • jonas bowen

    April 11, 2010

    When it comes to investing, many first time investors want to jump right in with both feet. Unfortunately, very few of those investors are successful. Investing in anything requires some degree of skill. It is important to remember that few investments are a sure thing – there is the risk of losing your money!

    Before you jump right in, it is better to not only find out more about investing and how it all works, but also to determine what your goals are. What do you hope to achieve with your investments? Will you be funding a college education? Buying a home? Retiring? Before you invest a single penny, really think about what you hope to achieve with that investment. Knowing what your goal is will help you make smarter investment decisions along the way!

  • Sean Riskowitz

    April 17, 2010

    Jonas, you are correct. See my article http://www.bestcashcow.com/stocks_-_options_-_mutual_funds/article/sean_riskowitz/dividend-yields-the-hidden-dangers for qualification and parameters when it comes to dividend investing.

    Chasing the highest yielding stocks without proper fundamental research is a sure-fire way of losing money.

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