uploads/2017/10/REV-EPS-CTL-1.png

What Led to CenturyLink’s Steep Dividend Yield Curve?

By

Updated

Revenue and EPS performance

CenturyLink (CTL) posted a fall in revenue of 2.4% in 2016 after a 1.0% fall in 2015. Legacy services and the data integration segments drove the fall, offset by the strategic services segment. The 6.0% fall in revenue for the first half of 2017 has been due to every segment except data integration.

CenturyLink’s EPS (earnings per share) fell 27.0% in 2016 after a 16.2% rise in 2015. Slower revenue growth and higher interest expenses drove the 2016 fall, offset by lower operating expenses. Flat revenue growth, lower operating expense, and flat interest expenses drove growth in 2015. Slower revenue drove the 59.0% fall in EPS for the first half of 2017, offset by lower operating and interest expenses. Share buybacks complemented the EPS numbers. The company generates enough free cash flow to pay its dividends.

Article continues below advertisement

Dividend trajectory

CenturyLink’s dividend yield curve has gradually risen between 2016 and 2017 compared to 2015 to 2016. The reason for that is the same dividend per share since 2014 followed by a price loss. The price loss was more pronounced in 2015 compared to the rest of the years and was actually the main driver behind the upward slope of the curve.

CenturyLink has a dividend yield of 10.8%, and its prices have fallen 15.5% on a YTD (year-to-date) basis. That compares to a dividend yield of 2.3% and a YTD price gain of 15.2% for the Dow Jones Industrial Average (DJIA-INDEX) (DIA). The S&P 500 (SPX-INDEX) (SPY) has a dividend yield of 2.3% and a YTD price gain of 13.6%. The Nasdaq Composite (COMP-INDEX) (ONEQ) has a YTD price gain of 22.2%.

The WisdomTree US Dividend ex-Financials ETF (DTN) is a dividend ETF with exposure to CenturyLink. The ETF offers a 3.2% dividend yield at a PE (price-to-earnings) ratio of 19.6x. The First Trust Dow Jones Global Select Dividend ETF (FGD) is a dividend ETF with exposure to CenturyLink. The ETF offers a 4.0% dividend yield at a PE ratio of 14.5x.

Advertisement

More From Market Realist