It’s simple to see why a dividend investor could be drawn to telecommunications expertise supplier Lumen Applied sciences Inc. (NYSE: LUMN). Its present $0.25 per share quarterly dividend comes out to a plump 12.3% yield.
However can buyers depend on that dividend quarter after quarter?
Within the brief time period, most likely. Long term could also be a distinct story.
This 12 months, Lumen is anticipated to document its lowest free money movement complete since 2017. Free money movement is forecast to drop from $3.6 billion to $2.2 billion.
Security Web by no means desires to see free money movement falling. If the decline continues, it might put lots of strain on the corporate’s means to pay the dividend.
Lumen’s payout ratio is low, which is why I don’t count on a direct dividend reduce.
This 12 months, Lumen is projected to pay out simply 47% of free money movement to shareholders in dividends. Something under 75% is a confidence booster.
Nonetheless, the corporate has reduce the dividend twice up to now 10 years – as soon as in 2013, when it dropped the dividend to $0.54 from $0.72, and as soon as in 2018, when it slashed the dividend from $0.54 to the present $0.25.
The corporate additionally has a brand-new CEO. Kate Johnson has not but signaled her intention relating to the dividend, but it surely’s not exhausting to think about her chopping the dividend if free money movement continues to deteriorate whereas she implements new plans and maybe hires new personnel.
The mixture of two dividend cuts and falling free money movement doesn’t give me confidence that the dividend is protected. If Johnson can flip issues round to the purpose the place free money movement is projected to be increased in 2023, then the inventory’s dividend security will get an improve.
However for now, Lumen’s historical past of dividend-slashing and its plummeting free money movement imply that you just can not contemplate the 12% yield protected.
Dividend Security Score: F
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Good investing,
Marc