In August, we published our report analyzing AT&T’s (T) ability to pay its dividends to shareholders. We are aware of how dividends are not an ordinary and necessary business expense, which explains why such payments are not tax-deductible for dividend-paying businesses. At the same time, dividend-paying companies have an implicit obligation to shareholders to pay dividends because such cash flows belong to the shareholders. If the company can’t invest said cash flows in projects that meet or exceed the cost of equity capital, and if the company is not facing a 1929 or 2008 macroeconomic shock, then it is duty-bound to return those cash flows to shareholders.
Based on the positive reception from our report evaluating AT&T’s dividend-paying ability, we analyzed and evaluated AT&T’s former subsidiary and current competitive peer Verizon Communications (VZ). Based on the subsequent positive reception from that article, we are extending this series to analyze and evaluate CenturyLink’s (CTL) ability to pay dividends.
CenturyLink acquired a former AT&T subsidiary (Qwest Communications (Q) by way of US West) in 2011, acquired former operations from Verizon that it inherited from GTE in 2000-2002, and resells Verizon Wireless products and services.
We have seen that the telecom industry’s legacy wireline business is in amature and declining industry phase, and we are starting to see signs of maturity from the wireless communications segment as well.
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