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How’s it going today guys i hope you’re having a fantastic day i do have a couple of quick updates for you guys but if you want to just skip right ahead to the video i’m going to include a timestamp down in the comment section below so you can go ahead and just click on that and skip ahead if you’re just wanting to get read ahead to the video but a couple of
Updates for you guys first of all as i’m sure you guys noticed i took a quick break from uploading on youtube i took a trip to washington dc first of all and while i was away i was kind of thinking about what i wanted to do with the channel and the one thing i’ve really stressed above all was that i wanted to be more organized and maybe structured with the content
I’m putting out there and so i actually put a vote out there to my community there on that video and that the vote was only up for about 24 hours but basically i asked people what they were looking to see from my channel in the top three things were number one was passive income most people want passive income related videos number two was stock market analysis
Analysis of individual stocks and number three was stock market strategy so that’s exactly what you’re going to be getting from this channel now earlier on in the week i’m going to be doing a video that’s either on analysis of a particular stock or it’s going to be a stock market strategy type video and then later on in the week it’s going to be a passive income
Style video and then anything else that i want to do that might not fit that i’ll end up uploading on the weekends so going forward now expect to about two to three videos a week from my channel earlier in the week being the stock market stuff later on in the week being the passive income related videos now that being said i’m also going to continue my giveaway
Of my stock radar membership every single week that’s my weekly stock analysis membership site and it is closed up until august 1st or a little bit thereafter i’m not sure what day i’m going to open it so the only way you can get in right now is by entering that giveaway and so i’m gonna do the giveaway next week to start that up again and then every single week
I’m going to be announcing a winner for that and all those details for how to enter are down in the description below but anyways let’s go ahead and get into the video here and talk about a stock that a lot of people have been messaging me about i’ve been seeing it mentioned in the comments of different videos and that is a stock called centurylink it’s a company
That i honestly had not heard of before until i had so many people contacting me about it i said alright i better look into it so centurylink trades on the new york stock exchange under the symbol ctl and take a wild guess why people are interested in this stock it’s because of the fact that they have an 11.5 percent dividend yield this stock is currently paying
Out a massive dividend it is one of the highest yielding dividend stocks out there right now and so a lot of people are looking at that and saying boy would i love to have a 12% dividend but in this video what i plan to do is talk about whether or not this is a dividend you can rely on and whether or not you should be buying centurylink stock for that 12 percent
Dividend now a little bit more on this stock here they have a price to earnings ratio of 10.5 according to yahoo finance and a forward p/e of seventeen point eight and so that alone indicates to me that earnings are expected to decline in the future when you’re seeing a forward p/e ratio higher than the current price to earnings ratio so earnings are expected to
Decline for this company based on future estimates a little more background on this company this is the third largest united states telecom company they offer communication services to residential business and government customers and 75% of their revenue comes from business customers so most of the customers they are serving our business-related customers so first
Of all i want to talk about the telecommunications services sector as a whole because it’s been doing terrible over the last year here so on the bottom right there this is from the fidelity sectors and industries tool it’s a tool that i like to use when i’m looking at the different sectors and industries and comparing them to the overall market and as we can see
Here over the last year the s&p 500 has returned about 13 point oh four percent and the diversified telecommunications services sector has returned a negative seven point four percent so it has underperformed the market and it has declined in the last year so let’s go ahead and look on the left there those are some of the competitors of centurylink now like we
Said centurylink mostly works with business customers so these aren’t going to be direct competitors but all these come are in that diversified telecommunications services sector and i just kind of ranked them from the top to bottom as far as where they’re falling just to give you an idea of what these stocks are doing and how they’re performing so verizon despite
The fact that the sector is down as a whole they’re actually up 7.8 percent over the last year t-mobile is down 4.5% comcast down 14.8% at&t the behemoth down 17% and they actually felt quite a bit after it was announced that the deal with time warner went through largely because i think shareholders of at&t are concerned about the debt that at&t is
Taking on centurylink down 24.2% over the last year and then sprint is down thirty two point three percent sprint is a little bit over $5 of share now so they’re almost considered a penny stock at this point in time trading at a share price of under $5 a share which is unbelievable but that’s what’s going on within diversified telecommunication services and
That gives you an idea of where centurylink is falling they are one of the worst performers here of these large telecom companies and again the reason why people are interested in this stock is because the average dividend of a stock on the s&p 500 is around two percent the average dividend in the telecommunication services is five point seven percent and
This dividend is almost a little bit more than double the average dividend in telecom services so that right there is why people are interested in this stock but one of the things i always stress on this channel is that you should not solely invest in the stock because of the dividend in fact the dividend should kind of be the afterthought the number one thing
You want to be looking for is asset appreciation to make sure the actual share price is going to appreciate and then if you get a dividend as well that’s kind of the gravy but a lot of people solely look for high dividends and this might be a trap here so let’s go ahead and talk about why this dividend might be cut in the future so first of all let’s go ahead
And determine whether or not centurylink can even afford to pay this dividend now there’s a couple of different ways you can do this i always rely on the dividend coverage ratio and that you calculate by taking the earnings per share and you can do this quarterly or annually divided by the dividends per share and if that number is below one that means that they
Are paying more in dividends than they are earning per share meaning they can’t afford that dividend so starting back there let’s look at 2014 they had earnings per share of dollar 36 in a dividend per share up to 16 given them a coverage ratio of zero point six three meaning they could not afford the dividend in 2014 they couldn’t afford it in 2015 either they
Could not afford it in 2016 however in 2017 they earn two dollars and 21 cents per share and they paid two dollars and sixteen cents in dividends so they had a coverage ratio of one point zero two meaning they barely could afford that dividend when i’m investing in a stock i want to see a coverage ratio of above 1.5 that’s usually a good amount of wiggle room for
The company to be making a good profit themselves and retaining earnings and also being generous with the shareholders and so a 1.02 is not a dividend you can rely on especially given the last three years there of you know not being able to afford that dividend and having to go into debt paying out that dividend and so that right there is an indicator that this
Company cannot afford to continue to pay this dividend based on where their earnings are at now now if their earnings improved down the road and they’re making more money then yes they could be able to afford that dividend but when you’re looking at an industry or sector that’s suffering overall and having a hard time growing that is when you have the question of
Will this company be able to you know improve their earnings and make more money and improve their earnings per share so one of the things are going to hear a lot about with centurylink is their acquisition of level 3 communications centurylink acquired level 3 communications in 2017 and this expanded their fios network and high-speed data for business customers
Which is a key growth area for telecom right now and so basically what is happening right now is that old communication is dying you know landline phones are dying people are not you know having landline phones i certainly don’t have one and pretty much everybody i know has cut the cut the landline telephone service to their home and so because that legacy part
Of their business is declining they’re responding by buying new communication assets and level 3 communications was a a new communication asset company primarily with this you know fios and high-speed data for business so the overall problem that centurylink is having is indicated on the bottom left there it’s a problem of revenue stability so there’s a decline
In the revenue from the old communication assets because people are cutting the cord and getting rid of their landline telephone services but the new communication revenue is not increasing fast enough to offset those losses and so they haven’t quite reached stability where hopefully they would reach a point where their new communication investments would begin
To grow revenue and they would see revenue growth going forward so they’re still in stages of seeing declining revenue due to the the dying off of that legacy portion of their business now the other problem we have to talk about here is the fact that the level 3 communications ceo is going to take over as ceo of centurylink in january of 2019 and oftentimes when
You see a new ceo taking control one of the first things are going to do is cut that dividend we saw that same thing take place with general electric when the new ceo took over john flannery one of the first things he did was cut that dividend because it didn’t make financial sense for that company to pay one and so we could easily see this happen with centurylink
We’re one of the first orders of business here is to cut that dividend because they can’t afford to pay it so that right there i think it’s one of the biggest threats to that dividend is the fact that there’s going to be a new ceo taking over in january of 2019 moving on we now look at one of the other big problems for centurylink and that is the fact that they are
Going into a lot of debt so what they’re doing is they’re acquiring these other newer communication companies like level 3 but as a result they are broadening themselves with a lot of debt and this is kind of what a lot of these telecom companies that are doing we’re also saw this happening with at&t buying the time warner assets and trying to diversify but in
The process they are building up their debt and taking on massive amounts of debt so on the bottom there we have the liabilities for centurylink from 12 2014 to 2017 and as you can see they really began to grow from 2016 to 2017 that was when they acquired level 3 communications and there long-term debt all more than doubled in that period of time from 18 point 1
Billion to thirty seven point two billion and so total liabilities went through the roof and as a result of their increase in debt their credit rating was downgraded to junk quality by sp standard & poor’s and i believe all the major ratings agencies have them read it as junk as far as their borrowing goes and so these agencies don’t have strong confidence in
Century links ability to pay back that debt so the overall problem was the cord cutting trend happening and the decline of the old communication assets and landline communications so their solution was to buy new communication assets that led to another problem of being burdened with debt and the debt load particularly the long term debt ballooned out of control
And then the reading agencies downgraded their debt to junk rating however the one thing we do have to say here is that the telecom sector is known for being a cash flow machine because it is a subscription type business where you know exactly what you’re going to be paying for your landline telephone or for your data or for your wireless plan every single month
And because it’s a recurring revenue business they are a cash flow machine so that does give them a good ability to pay back that debt because they have a good recurrent revenue model but they still have a sizeable debt load and you know the major agencies that are not confident about their ability to pay back that debt so overall that is what is going on with
Centurylink that is why we have seen that stock fall about 25 percent in the last year and you cannot count on this dividend there’s nothing saying that this dividend is safe or that it’s not going to be cut now if it is cut that one thing you have to remember is that right now there’s paying about a double yield compared to what most of these telecom companies are
Paying out and even if it was cut 50 percent that would still be a sizable dividend and it might be an interesting investment but i just don’t really have confidence in the telecom industry overall just for these main reasons here first of all we know old communication is in decline second of all the value wireless options are improving and that’s more towards you
Know the industry overall so that was one of the problems i have with at&t is that the value options like straight talk are really improving their service and reliability and more and more people are moving away from these large carriers and going for these value options number three high speed data and new communications is the growth opportunity for these
Telecom companies but number five is going to be the counter to that because network upgrades are very capital-intensive and that again is just going to contribute to the debt problem these companies have they’re either going to be laying out massive amounts of cash to upgrade their networks or they’re gonna be acquiring smaller companies and again taking on more
Debt and overall the cord cutting is on the rise and these are the major threats to that industry so would i be running out to buy centurylink stock i would not i would at least wait until the new ceo takes over and take a look and see what his plans are but do keep in mind that one of the first things that usually happens when a new ceo takes over is that they
Look at the company and they say okay is this making financial sense and if it isn’t you know they’re not afraid to make some drastic changes and so i do think that there is a threat there with that dividend but even if it is cut they might still pay a sizable dividend compared to their peers so if centurylink can achieve revenue stability maybe they’ll be able to
Keep this dividend where it is i certainly don’t have much confidence in that dividend but i just wanted to share my thoughts with you guys on this stock but anyways guys i hope you enjoyed this video let me know what you think down in the comment section below and if you guys have any ideas as far as the videos you’d like to see here or a stock to analyze make
Sure you let me know down below as well the giveaway for stock radar is going to start again next week so make sure you guys enter that if you’re interested and i will see you in the next video if you are interested in learning more about investing in the stock market i’ve created a free course just for you the link is in the description below here are a few other
Videos you might enjoy as well you
Transcribed from video
12% DIVIDEND YIELD 💸 Is This Stock A Buy? By Ryan Scribner
