Communications company CenturyLink (NYSE:CTL) hasn't delivered much to shareholders this year in terms of share price appreciation. But with an eye-popping dividend yield of 6.90%, CenturyLink is a stock that should deliver stable returns to investors. While there have been concerns in the past regarding whether it will be able to sustain its dividend or not, investors should focus on CenturyLink's solid growth in the business and strategies to improve further.
Improvements all around
CenturyLink is working to improve its revenue through growth in broadband, Prism TV, and high bandwidth data services and hosting services. In addition, MPLS, Ethernet, and Wavelength segments are also driving growth.
Going forward, CenturyLink expects its high speed internet and Prism TV services to grow further. So, far, these services have gained good adoption, resulting in the addition of 14,000 HSI customers and 69,000 Prism TV subscribers last year. Also, CenturyLink is making investments to improve broadband speed availability and expects a 25% increase in the customer base going forward.
Further, CenturyLink's share repurchases have also led to growth in earnings. CenturyLink has completed 86% of its $2 billion repurchase program initiated last year. CenturyLink is also focused on maintaining profits by aligning its operating costs with projected revenue growth, in order to generate solid, predictable cash flows. Driven by these strategies, CenturyLink is confident of maintaining its dividend.
Moving on to CenturyLink's key strategies, the company is focusing on broadband expansion and enhancement by making significant investments. Further, the company has high expectations from its multitenant unit, or MTU program, as a result of its ability of providing broadband capabilities of up to 1 GB and enhancing cloud connectivity.
Moreover, CenturyLink is deploying a number of products, including gigabit fiber, VDSL2, and pair bonding deployments to efficiently enable higher speeds and enhance services to consumers and businesses. These moves should allow it to deliver very competitive broadband speeds, including up to 1 gigabit services and continue driving broadband penetration. Encouraged by good results from gigabit pilots in Omaha and Las Vegas, CenturyLink, by coupling its GPON technology, gigabit enablement with expansion of fiber to the node, and Prism TV deployment, is looking to address the broadband needs of customers.
Moving on to the Prism TV service, CenturyLink is seeing solid growth as it provides a compelling entertainment alternative to cable TV service. The product is expected to add more subscribers going forward. CenturyLink also has more features in the pipeline for IPTV, including new functionality and applications, including the expansion of TV Everywhere capabilities, video-on-demand library, and the recent successful trial of wireless set top boxes.
However, the company is seeing weakness in the wireless wholesale segment. However, CenturyLink should gain momentum in this market through expansion of Ethernet deployment. CenturyLink is also undertaking a customer retention scheme, focusing more on high-value customers in high speed internet, voice, and Prism TV services. It has also initiated new customer outreach programs and auto-pay take rates to improve profitability.
Also, CenturyLink is focused on strengthening its weak wholesale segment by expanding its fiber deployment to wireless towers, expecting revenue growth in the future as a result of strong demand. All these initiatives look interesting and make CenturyLink an interesting proposition at just 13 times forward earnings.
Moreover, CenturyLink's performance in the next five years is expected to be way better than the last five. According to analysts, the company's projected earnings CAGR for the next five years is a negative 1%, way better than the negative 10% seen in the last five years.
Coming to the sustainability of the dividend, it can be seen that CenturyLink has a strong operating cash flow of $5.56 billion, which should help it continue buying back shares and paying dividends. CenturyLink management is confident about being able to sustain the dividend. According to Glen Post, the CEO -
"We believe this improving revenue trend, along with the strategic opportunities in the marketplace, position us well for future revenue growth and cash generation. These are the key reasons we believe that our dividend is sustainable and that our payout ratio will remain at a reasonable level, even as we begin to pay higher cash taxes in the future."
With its expansion strategy and improved services, CenturyLink is looking well-positioned for growth. Management believes that it will be able to keep the dividend intact going forward, and the growth in the business further suggests that more upside lies in store for CenturyLink.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.