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.