When LUMN talked about the two asset sales (that close in the first and second half of this year) the CEO Jeff Storey said it could create pressure on the dividend during the Q2 2021 conference call results. He said:
I do realize that will put pressure on our dividend after we close these transactions and the further we get into our investment program. But as of now, we are not faced with that trade-off decision, and we’ll continue to balance the return of cash to shareholders through dividends and buybacks while we accelerate our investment in Enterprise and Quantum Fiber growth.
Obviously, the market did not take kindly to that comment and the stock was impacted negatively. Since the second quarter conference call they have been trying to walk that statement back sending a message the dividend will not be cut. The tone started to change on the Q3 2021 conference call results stating:
Another key priority for Lumen is the importance we place on returning cash to shareholders. Therefore, we have no plans to modify our dividend, which we believe is sustainable at the $1 per share level.
Our board believes the return of cash in the form of a dividend is an important part of our value proposition and we are focused on supporting our dividend, even as we make the investments necessary to reach our growth objectives.
On January 6, 2022 CEO Jeff Storey presented at Citi’s AppsEconomy Virtual Conference. The dividend comments appear to be stronger. Citi posed the following questions answered by the CEO:
Moving over to capital allocation, so the decision to maintain the dividend. The dividend yield right now, I think is in the mid sevens. And what do you think the market may be under appreciating about Lumen’s capital allocation strategy that bolstered the board’s confidence to sustain the current dividend and list that as one of the priorities as part of the refresh that was disclosed last year?
I don’t know, this is it or not. But we have no plans to decrease our dividend. And our board believes that it’s an important part of our shareholder value. Our board that I believe that is sustainable in $1 per share. So we were very comfortable with the dollar per share. We do expect payout ratios to increase in the near term as we make this transition to growth, and but we’ll also more or less maintain our current leverage ratios, more or less level through the investment cycle.
All right. So question number one, Jeff, why should investors buy your equity?
We’re undervalued. We’ve demonstrated that with the ILEC sales and LATAM sales both are great businesses, we have assets that we were not investing in. We’ve got incredibly strong assets in the remaining business. Our fiber infrastructure, edge computing IP backbone, connectivity to sources of data, by investing to drive growth, we expect top-line growth to return in the next two to three years. We have a sustainable dividend at $1 per share.
On the 4Q21 conference call 02/09/22
As we look at the dividend and the payout ratio, and I have said this before, we think that the dividend is an important part of our shareholder value proposition. We think the $1 per share is attractive to investors and it’s sustainable, so we are very comfortable with the dividend there.
Has something changed since the original comment about pressure on the dividend? Are they raising there internal projections? Don’t know but it appears they will do everything in their power to maintain the dividend through a period of lower free cash flow after the asset sales are completed. The last time they cut the dividend they also gave the impression the dividend was safe. Is it different this time? The market appears to like these recent comments. What do you think?