Last update on 2024-06-27

Lumen Technologies (LUMN) - Dividend Analysis (Final Score: 4/8)

Analysis of Lumen Technologies' (LUMN) dividend stability using an 8-criteria scoring system reveals a score of 4 out of 8, indicating concerns in several areas.

Short Analysis - Dividend Score: 4

We're running Lumen Technologies (LUMN) against the 8-criteria scoring system to evaluate the performance and stability of a company's dividend policy.

Lumen Technologies was evaluated using an 8-criteria scoring system for its dividend policy, scoring 4 out of 8. The company has stopped paying dividends in 2023, a sharp contrast to its peak dividend yield of over 14% in past years. Its Dividend Growth Rate and consistency have been poor, marked by periods of zero or erratic payouts. Payout ratios have been volatile, sometimes exceeding 100%, indicating financial stress. Earnings and cash flow coverage for dividends have also become negative in recent years. The company has had a mixed record of stable dividends and stock repurchases, showing signs of significant financial challenges.

Insights for Value Investors Seeking Stable Income

Given that Lumen Technologies has ceased dividend payments and shown poor stability in both earnings and cash flow coverage, it might be a high-risk option for income-focused investors. The negative trends and fluctuating financial metrics suggest underlying financial difficulties. Therefore, cautious investors should think twice before considering Lumen Technologies for dividend investments. It might be better to explore companies with more consistent and stable dividend records.

For those who are interested in delving deeper into the specifics, the subsequent section provides a comprehensive exploration of the criteria.

Dividend Yield Higher than the Industry Average?

Dividend yield is an indicator of how much cash flow investors are getting for every dollar invested in equity. It is crucial for assessing the income-generating potential of a stock.

For the year 2023, Lumen Technologies' dividend yield is recorded at 0%, which is notably lower than the industry average of 3.56%. Prior to 2023, Lumen consistently maintained higher dividend yields compared to the industry, peaking at 14.3678% in 2022. For example, in 2018, it was 14.2574% while the industry average was around 2.73%. The substantial drop to 0% in 2023 is concerning as it indicates a suspension of dividends which could signify underlying financial difficulties or a shift in corporate strategy. Additionally, the continuous decline in stock price from $32.62 in 2003 to $1.83 in 2023 suggests deteriorating market confidence. This trend is unfavorable for income-focused investors, especially given Lumen's prior track record of higher dividends.

Average annual Growth Rate higher than 5% in the last 20 years?

The Dividend Growth Rate (DGR) measures the rate at which a company's dividend payments have increased over a specified period. It is vital as it reflects growth potential.

Lumen Technologies (LUMN) has experienced a volatile history regarding its dividend per share ratio over the last two decades. The reported dividend per share ratio started positively in the early 2000s but underwent abrupt changes, even turning significantly negative at certain points. Notably, the company had zero dividends from 2011 to 2018 and significant drops in 2022 and 2023. An average dividend ratio of approximately 27.77% does indicate some periods of increased dividends. However, the presence of multiple years with zero or negative dividends greatly diminishes the consistency and reliability of a high DGR above 5%. Hence, it is evident that the company has struggled to maintain a positive and increasing dividend trend, which is a bad trend for this criterion.

Average annual Payout Ratio lower than 65% in the last 20 years?

Average payout ratio is an essential indicator of dividend sustainability, reflecting the proportion of earnings paid out as dividends. A consistently lower payout ratio than 65% indicates that the company prioritizes reinvestment and has a cushion for future dividend payments, making this a critical metric for long-term dividend investors.

Lumen Technologies has shown highly volatile payout ratios over the last two decades. The average payout ratio is 27.89%, which falls below the 65% threshold, suggesting a general trend of maintaining dividends within sustainable earnings levels. However, the fluctuations, particularly between 2009 and 2018, where the payout ratio exceeded 100% multiple years, indicate periods of financial stress and heavy dividend payouts beyond earnings, undermining the company's capability to sustainably distribute dividends. This sporadic payout pattern, including negative values in recent years, signals potential instability in ensuring ongoing dividends, despite the attractive average ratio over 20 years.

Dividends Well Covered by Earnings?

Dividends being well covered by earnings means that the company's earnings per share are sufficiently higher than its dividend per share. This indicates sustainability.

Over the years, Lumen Technologies' earning per share (EPS) and dividends per share (DPS) show an alarming trend. In early years like 2003-2007, EPS moderately covered DPS. However, from 2008 onwards, the gap began to widen dramatically, especially post-2017 where EPS showed negative values consistently and DPS only reacted with a delay. Such a trend signals a poor sustainability outlook for its dividends. For example, in 2023, the EPS is deeply negative at -10.4752, while DPS is at 0, indicating a drastic shift towards insolvency in dividend distribution. Overall, this trend is concerning and implies that Lumen Technologies is struggling to maintain positive earnings to cover dividends. Negative EPS values in years like 2021 and especially 2023 stress the unsustainable nature of prior dividend policies.

Dividends Well Covered by Cash Flow?

Examining whether dividends are well covered by cash flow is fundamental to assess the sustainability of dividend payments. Cash flow coverage determines the ability of a company to sustain its dividend payments.

In analyzing the cash flow coverage for Lumen Technologies (LUMN) from 2003 to 2023, several key insights emerge. Significant peaks were observed in 2017, with the coverage ratio at an impressive 1.8821, indicating ample free cash flow that year, and in 2010 to 2011, with the ratio near or above 0.7, reflecting robust financial health and suggesting that the dividends were well-covered by cash flow. However, in other periods, especially in 2023 where the metric plummeted to -0.0117, it shows a negative cash flow against a positive dividend payout, raising concerns about the financial strategy. While earlier years exhibit positively moderate coverages, the dropping trend in recent years reveals potential issues in maintaining sustainable dividends without reliable free cash flow, posing risks to dividend yield stability. Specifically, the negative value in 2023 is a glaring signal that without corrective measures, sustaining such dividend payments might contribute to financial strain or elevated risk for investors.

Stable Dividends Since the Company Began Paying Dividends?

Stable dividend payments over an extended period, especially 20 years, help maintain investor confidence. Stability indicates robust earnings, consistent cash flow, and prudent management. Sharp declines (>20%) could signal underlying financial issues, risking investor income and trust.

Examining Lumen Technologies' dividend per share over the last 20 years reveals significant volatility. After maintaining modest increases from 2003 to 2007, there was a drastic jump in 2008, followed by continued high dividends until 2012. However, from 2013, we see a sharp 25.5% drop from $2.9 to $2.16, indicating financial instability. Another significant cut occurred in 2018, dropping the dividend to $1, a >50% reduction, emblematic of further distress. The final blow was in 2022, with dividends slashed from $0.75 to zero in 2023. This trend is concerning for income-seeking investors, reflecting inconsistencies and potential financial troubles.

Dividends Paid for Over 25 Years?

Evaluating if a company has paid dividends for over 25 years is crucial because it shows long-term commitment to returning value to shareholders and indicates financial stability.

Lumen Technologies has a mixed track record when it comes to paying dividends. The company has paid dividends every year from 1998 to 2022, but the dividend per share amount exhibits significant variation. Starting at $0.1736 per share in 1998, the dividend grew steadily until 2007 when it reached $0.26 per share. For the years 2008 to 2012, there was a dramatic increase in dividend per share, hitting $2.9. However, post-2012, the dividend stabilized at $2.16 per share until 2017. A noticeable drop occurred in 2018, with the dividend per share plunging to $1 and remaining there through 2021 before further declining to $0.75 in 2022. Notably, no dividend has been reported for 2023. This erratic trend, particularly the sudden drops in dividend amounts and the eventual cessation in 2023, does not paint a favorable picture. It raises concerns about the company's ability to maintain a consistent dividend policy and its overall financial health.

Reliable Stock Repurchases Over the Past 20 Years?

Examine whether Lumen Technologies has consistently bought back its own shares over the past two decades and evaluate its consistency.

Reliable stock repurchases bolster shareholder value by reducing the number of shares outstanding, thus increasing earnings per share (EPS). A historical look at Lumen Technologies’ share count data from 2003 to 2023 shows that the company has repurchased shares during 12 years in this period. Notably, significant share repurchases occurred in 2004, 2005, 2006, 2007, 2008, 2013, 2014, 2015, 2016, 2021, 2022, and 2023. However, there were also years, particularly 2009 and 2010, when the share count increased substantially. The average repurchase percentage over the last 20 years stands at 13.5018%, indicating a solid but not unreserved commitment to share repurchases. The trend shows a mix of aggressive buybacks in certain periods contrasted by share issuances, leading to a neutral to marginally positive evaluation on their consistency in stock repurchases.