The once-familiar household name, CenturyLink, made a name switch to Lumen Technologies. It made the switch with the intention of focusing on fiber connectivity.
It has a reputation of offering a high dividend, but as many investors have been forewarned, it's not a good idea to invest in too-high stock dividends. With that in mind, is it worth investing in Lumen Technologies as a dividend stock? (Its 48.54% dividend payout ratio shows evidence of its high dividend yield.)
Let's take a look at the history of Lumen Technologies Inc. and the pros and cons of investing in this particular high-dividend payer.
Lumen Technologies Inc. History
The Oak Ridge Telephone Company was founded in Oak Ridge, Louisiana by F. E. Hogan, Sr. Hogan sold the company for $500 in 1930 to William Clarke and Marie Williams, who operated the switchboard out of the Williams family front parlor. Clarke McRae Williams received ownership of the family's telephone company as a wedding gift in 1946. He expanded the company in 1947 when he purchased the Marion Telephone Company.
In the 1960s, the company was incorporated as Central Telephone and Electronics and was renamed Century Telephone Enterprises Inc. in 1971.
In 1997, Century Telephone acquired its largest acquisition up until that time, Pacific Telecom, Inc. and was later renamed CenturyTel of the Northwest Inc. In 1999, the company was renamed CenturyTel Inc.
Embarq, one of the largest independent local exchange carriers in the United States, was acquired by CenturyTel Inc. in 2009 and the CenturyTel/Embarq entity became CenturyLink, Inc. in May 2010.
The technology and communications company changed names again, to Lumen Technologies Inc. On September 18, 2020, the company stock ticker changed from CTL to LUMN. The company kept its CenturyLink brand for traditional copper-based services, while fiber-based products and services use the Quantum Fiber brand.
In 2022, Lumen Technologies Inc. (NYSE: LUMN), still headquartered in Louisiana, offers technology and communications to business and residential customers worldwide through its business and mass markets segments. It offers:
- Cloud services
- IT solutions
- Unified communication and collaboration solutions
- Colocation and data center services
- Content delivery services
- Managed security services
- IP and data services
- Fiber infrastructure services
- Private line services
- Traditional time division multiplexing voice services
- Ethernet, legacy data hosting service and conferencing services
Pros and Cons of Lumen Technologies Inc.
Before you choose to invest in Lumen Technologies, Inc., it might be worthwhile to take a look at the pros and cons before you decide.
Pros:
Let's take a look at the benefits of investing in Lumen Technologies Inc. first:
- High dividend payouts:Lumen Technologies showboats a dividend yield of 9.49%, an annual dividend of $1 per share and a dividend payout ratio of 48.54%. The dividend yield shows how much a company pays in dividends each year compared to its stock price, while the dividend payout ratio refers to the ratio of dividend amounts paid out to shareholders compared to the net income of the company.
- Good recent reports: Lumen Technologies Inc. reported a net income of $599 million for the first quarter of 2022, compared to a net income of $475 million Q1 2021. It had a diluted EPS of $0.59 for the first quarter 2022 while Q1 of 2021 showed $0.44 per share. The company had a generated adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of $1.966 billion for Q1 of 2022 compared to $2.165 billion for the first quarter 2021 and net cash of $1.375 billion for the Q1 2022.
- Cash abounds: The company has cash and cash equivalents that exceed $300 million. The company generated free cash flow of $846 million for the first quarter 2022 compared to $850 million for Q1 2021. The dividend payout ratio factors out non-cash charges like depreciation and amortization and accounts for long-term capital expenditures and equipment.
Cons:
Next, let's take a look at the potential downsides of investing in the stock:
- Debt load: Lumen has $8.30 billion due within a year and more due after that. The debt load may be nerve-wracking to some investors, so it's a good idea to carefully pay close attention to the balance sheet. If all of its debts came due tomorrow, it would likely be in a world of hurt. Its debt to equity ratio may hurt future profitability.
- Past dividend cuts: Dividends haven't always held steady. The company cut its dividend in 2019, from 54 cents to 25 cents. In 2013, it also went down, from 72.5 cents to 54 cents in 2013. Past dividend cuts could affect the future.
- Stock volatility: If you would rather benefit off the stock by selling it rather than claiming dividends, Lumen stock continues to plunge. The reason? The company projected that its EBITDA will fall this year.
- Growth struggles: In 2019, 2020 and 2021, revenue declined. For example, Revenue was down $353 million from Q1 earnings from the same period last year in 2021.
Should You Add Lumen Technologies Inc. to Your List?
Should Lumen Technologies go on your list of the best growth and dividend stocks? Only you can answer that based on your goals. However, many investors are equally anxious about its debt load, revenue declines and growth struggles.
Analysts suggest holding the stock rather than jumping in and holding on, but that doesn't mean that Lumen doesn't have significant irons in the fire. Before you invest, consider Lumen's sales success, earnings per share and operating cash, as well as its goals for the future and more.
Consider investing in an ETF if you'd rather have more diversification. It may help you weather the storms ahead and help you balance your investing portfolio a little bit better than if you were to sink all of your hard-earned cash into a single stock like Lumen.
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Companies Mentioned in This Article:| Company | Current Price | Price Change | Dividend Yield | P/E Ratio | Consensus Rating | Consensus Price Target |
|---|
| Lumen Technologies (LUMN) | $1.38 | +1.1% | N/A | -0.13 | Reduce | $1.81 |
About Melissa Brock
Experience
Melissa Brock worked as an associate editor & contributing writer for DividendStocks.com from 2021 to 2024.
She currently works as a full-time freelance writer and financial editor covering higher education, investing, personal finance, mortgages, college savings, insurance, and more.
Areas of Expertise
Dividend Stocks, Retirement
Education
Bachelor of Arts in Communication Studies, Central College, Pella, Iowa
Past Experience
Melissa graduated summa cum laude with a bachelor of arts in communication studies with minors in psychology and Spanish from Central College. She's a longtime member of the National Association of College Admission Counseling (NACAC). While working in college admission, Melissa Brock pursued a freelance writing and editing career.