With interest rates near zero, investors have been desperately seeking strong yields. Investors are moving toward high-yielding stocks as an alternative to bonds, but they need to do in-depth research before initiating any position in any stocks. The recent plunge in the economy as well as new emerging markets have forced many companies to cut or sustain similar dividends. These cuts in dividends mean that companies are not able to sustain their profitability momentum over a long period. In this piece, I pick two companies that I believe are not solid investments for dividend investors. I also pick one company from the Consumer Cyclical sector for safe income.
CenturyLink, Inc. (NYSE:CTL) dividend profile
CenturyLink, Inc. (NYSE:CTL) is recognized as a leader in the network services market. After sustaining a quarterly dividend of $0.724 for the past 12 quarters, the company announced a cut in its dividends. At present, CenturyLink, Inc. (NYSE:CTL) offers a quarterly dividend of $0.54 cents per share.
Why the dividends are not safe
CenturyLink’s top line growth has been quite stagnant over the past few quarters, though it has been able to achieve solid broadband and Prism TV customer growth in the first quarter. Its first quarter revenue of $4.51 billion represents a decrease of $0.10 billion over the same quarter a year ago. To cope with stagnant top line growth, CenturyLink is creating and capitalizing on organic growth opportunities. Additionally, the company is looking to enhance its margins. They are implementing an organizational realignment in order to strengthen their go-to market strategy and service delivery process.
The company’s financial situation is not good enough for dividend investors at present. After a dividend cut, it is paying more in dividends over its earnings. In the trailing twelve months, its payout ratio based on dividends stands at 193.1%. At the end of the recent quarter, its net earnings stood at $298 million, while it paid $341 million in dividends. To top things off, the company has a high debt-to-equity ratio of 1.0 relative to the industry average of 0.8. Another red flag is its cash flows, which also show decreasing trends.
Windstream Corporation (NASDAQ:WIN) dividend profile
Windstream Corporation (NASDAQ:WIN) offers advanced communications and technology solutions – including managed services and cloud computing – to businesses nationwide. It has sustained its quarterly dividend of $0.25 cents/share over the past four years.
Why the dividends are not safe
Over the last few years, Windstream Corporation (NASDAQ:WIN) has pursued an aggressive acquisition strategy, allowing the company to broaden the types of services it provides. Windstream has experienced a decline in the fixed-line phone business, however. As a result, its revenue growth is decreasing quarter-over-quarter. Recently, it announced its first quarter results with total revenue of $1.5 billion, a decrease of 2%.
