The dividend suspension is a major disappointment for me because Lumen would have easily covered its dividend based on free cash flow. Nonetheless, the telecommunications company canceled its annual dividend of $1.00 per share as management shifted its focus to growth and debt reduction.įurthermore, Lumen intends to gain financial flexibility by foregoing its obligations to shareholders. Lumen increased its forecast for 2022 free cash flow from $2.0-2.2 billion to $2.2-2.4 billion, a 9.5% increase at the midpoint. In comparison, the dividend payout would have cost Lumen approximately $2.0-2.1 billion over the next two years, so the policy change is expected to save the company $500-600 million. Lumen has instead authorized a two-year share repurchase program that could result in the repurchase of up to $1.5 billion in Lumen stock. To focus more on growth, Lumen announced the elimination of its dividend, which will also not be paid in the fourth quarter. In 3Q-22, the implied free cash flow pay-out ratio was 42%. Lumen's operations generated $620 million in free cash flow in the September quarter, more than enough to cover the $260 million it costs the company to pay its dividend each quarter. Quantum Fiber Subscriber Trends (Lumen Technologies) 3Q-22 Free Cash Flow, Updated Forecast And Dividend Cut Lumen increased its fiber broadband sales by 18% YoY in the third quarter, and its subscribers increased by 14% YoY to 813K. While the overall telecommunications industry is struggling to grow, Lumen's ability to steadily grow its subscriber base gives reason for optimism. Lumen also recently completed some significant business transactions, totaling approximately $10 billion in gross proceeds. To be honest, the only place I see Lumen making money in the future is in the fiber broadband business. Lumen generated robust profits in the third quarter on an adjusted EBITDA basis, with total EBITDA totaling $1.66 billion, an 11% decrease YoY. Lumen's sales have been declining for some time, particularly in the mass market segment, as market penetration is high and incremental buyers are becoming increasingly difficult to find. Lumen generated $4.32 billion in adjusted sales in 3Q-22, 5% less than the previous year. Lumen operates in a mature and saturated market, which means that market expansion is slow or non-existent. Ongoing Decline In Sales, But Fiber Is Giving Hope I believe the stock will remain appealing in the long run, but with the dividend cut, LUMN is little more than a Hold right now. The news caused significant turbulence for Lumen's stock price, which fell 17% on Wednesday in response to the dividend cut. The company also increased its free cash flow forecast from $2.0-2.2 billion to $2.2-2.4 billion, but decided to replace its dividend with stock repurchases in the future. ( NYSE: LUMN) announced its third quarter earnings presentation on Wednesday, shocking investors by canceling its dividend payment.
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