In the quarter that ended in March 2013, it had $170 million of free cash flow to pay out $100 million in dividends. So far, it can afford its dividend. An earnings miss in coming quarters though could put it in a precarious position.
Windstream Corporation (NASDAQ:WIN) has paid out dividends in excess of free cash flow in two of the previous three quarters reported. Earnings are expected to come in this year at $0.41 per share, down from $0.48 per share last year. Next year, earnings are expected to be $0.50 per share. It will need this growth in order to maintain its dividend, as $73 million in cash (its balance sheet amount as of March) cannot afford a dividend payment.
CenturyLink – Strongest of the three
CenturyLink, Inc. (NYSE:CTL) has easily covered its dividend payments based on its cash flow in the previous four quarters reported. It only has $476 million in cash on its most recent balance sheet though, so earnings will have to come in as expected in order for it to maintain its dividends comfortably. With its strong free cash flow, it has a bit more wiggle room.
I do not view these companies as great investments at this point for purposes of new money. I much prefer investing in the large tobacco companies or the larger telecoms to cash in on the dividend growth.
Over the past year, it has paid to be in the larger names. I see that as a trend that will continue and would only consider adding to my position in CenturyLink, Inc. (NYSE:CTL) if it were to fall in price significantly from here.
When it comes to dividend yields, you won’t find many higher than Frontier Communications. While its juicy dividend is tempting, every Frontier investor has to understand that it’s not a sure thing. A huge acquisition has transformed the company forever. Will the move bear fruit, or are investors destined for another disappointing dividend cut?
The article A Look at the Dividends of 3 Telecom Stocks originally appeared on Fool.com and is written by Anthony Parsons.
Anthony Parsons owns shares of CenturyLink. The Motley Fool has no position in any of the stocks mentioned. Anthony is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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