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If you own shares of CenturyLink Communications (CTL), you've surely heard the news by now. If you haven't, you better have a really good excuse, such as vacationing in the deep jungles of the Amazon and having no contact with the outside world. In which case you're not even reading this, but I digress…

CenturyLink has recently been struggling to integrate several acquisitions while contending with a shrinking land line business. And the results haven't been good. The shares took a pounding last week, dropping 22% the day after a conference call to announce quarterly earnings and a dividend cut. If you're a regular reader of D&I Daily, then you shouldn't have been surprised. I raised a red flag for shareholders of CenturyLink back in December and told our readers to steer clear.

Let's see if CenturyLink Communications has turned itself around since then.

Earnings As Expected, But…

Considering the drubbing the stock got, you'd think the earnings were terrible, but they weren't. President and Chief Executive Officer Glen Post delivered the news on the call. Revenue for the fourth quarter and for 2012 came in at $4.58 billion and $18.4 billion, respectively.

CenturyLink delivered a profit of $233 million, up from $109 million the year prior. Earnings per share excluding amortization and special items were $0.67 cents, up from $0.55, which is in line with the forecasted $0.64 to $0.69 per share.

So far, so good…

CEO Post also let shareholders know that while the company continues to face "declines in legacy services," other businesses have been growing, including broadband, Prism TV and high-bandwidth data services. He said the company is focused "on continued strategic investment." (My emphasis.) Recall, in December, I pointed out that the dividend was susceptible preciselybecause the company needed to put more capital toward things like "strategic investment," enabling it to grow businesses that might offset losses in areas like landlines.

So, what about that dividend Mr. Post?

Something's Got to Give

It got cut, of course. Post said the dividend cut was because of "changes to our capital allocation strategy." And that "we have decided to repurchase up to an aggregate $2 billion of our outstanding common stock for the next two-year period… and we've decided to reduce our quarterly dividend to $0.54 a share from $0.725 per share."

In short, they're going to pay shareholders less and buy back stock instead. But that's not all. After "working with the rating agencies, it became apparent that in order to maintain investment grade ratings, we need to reduce investment and/or… reduce the dividend significantly and use 100% of free cash flow to repay debt."

There it is. What we thought in December was right on the money. Something had to give and, in the end, the dividend program took the fall. He claimed the decision was "in the long-term best interest for the company and our investors." Well, I don't know about the long term, but it certainly hasn't been any good in the short term, given that the stock value dropped 22% the next day after the cut. Ouch.

But Now it's a "Buy," Right?

Not so fast, Sparky.

After the announcement, the price of CenturyLink collapsed. A few analysts called it a buying opportunity, and it might be. But I say let the smoke clear and give CTL another quarter or two (or more). The stock already rebounded a bit, and it might climb higher from here. But to buy it now is still a purely speculative play. You see, CenturyLink is a company that's still rebuilding itself. There's no banking on the outcome. And given the fact that the dividend has fallen way down on the company's list of priorities, for income purposes, there's no sense at all in putting yourself at risk.

If you own shares, holding on until the smoke clears might serve you well. But like we told you in December, keep a stop-loss order on the stock. And if you don't own it, keep your distance. You'll sleep better for it.

Source: CenturyLink CEO: The Money's Got To Come From Somewhere