Are These High Yield Dividend Plays at Risk?

Michael Teague  |

Telecommunications company CenturyLink Inc. (CTL) rattled investors recently by decreasing its dividend payout by 26 percent, resulting in an immediate drop of 22.6 percent in its share price.

CenturyLink had an extremely generous dividend yield of 8.55 percent, and a huge payout ratio of 245.41 percent. With projected earnings-per-share growth for next year of about 12 percent, it is difficult to imagine that the company could have done anything to avoid cutting its dividend payout down to a more manageable size. Consequently, companies that fit a similar profile to that of CenturyLink also saw their stock price get dragged down on the news. Here are a few names that could potentially be at risk of cutting their dividend payouts in the near future due to high percentages that cannot be maintained on the company’s financials and fit the following criteria:

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-Payout ratio of well over 100 percent of earnings
-High dividend yield of over 8 percent (generally yields of around 3 to 4 percent are considered sustainable)
-Negative or low earnings-per-share growth for the next year
-Negative price performance for the past month (a potential sign that investors may be bearish on the stock)

About a dozen companies show up with similar numbers, three of them are telecoms.  They are the following:

Windstream Corp (WIN) – the company has a dividend yield of 11.70 percent, a payout ratio of 425.96 percent, and a forward P/E of 16.13.  After a bad fourth quarter earnings report, in which decreases over the prior year in revenue, earnings per share growth, sales, and a decrease in new subscribers for high-speed internet and digital TV, it is not inconceivable that Windstream will eventually have no choice but to reduce its dividend payments.

Consolidated Communications Holdings Inc. (CNSL) – the company has a dividend yield of 9.29 percent, an enormous payout ratio of 423.05 percent, and a forward P/E of 22.25.

Frontier Communications Corp. (FTR) – the company has a dividend yield of 9.95 percent, a payout ratio of 322.14 percent, and a forward P/E of 16.08.

Armour Residential REIT (ARR) – with a dividend yield percentage of 14.66, a payout ratio of 166.14 percent, and a forward P/E of only 6.3.  A further look at the company’s numbers reinforces the results of the screen: the year-to-date performance is up only 3.64 percent, while the company’s stock has been performing poorly over the last month.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not necessarily represent the views of Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to:


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