Sweet yields can bring sour consequences. That’s a lesson I learned once again, after recommending high yielding CenturyLink Inc (NYSE: CTL) in last month’s Feature article.
The company was on the Endangered Dividends List for shrinking revenue. Nonetheless, hefty free cash flow and attractive broadband assets convinced me the dividend could be maintained. In fact, that’s what management asserted right up until it announced a 54 percent dividend cut on February 13.
The company couched the reduction as a capital management decision to pay off debt faster. The real reason, however, is buried in the information the company released, prior to the discovery of accounting weakness that’s delayed the filing of its Form 10-K.
Mainly, CenturyLink’s overall revenue continues to shrink at an alarming pace. That’s because sales from the broadband and enterprise portions of the company aren’t just failing to keep up with declines in the consumer business. They’re actually declining in the face of rising competition across the board.
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