Lumen Technologies Stock: Bullish Tech Stock With Inflation-Busting Dividends
June 9, 2022
Lumen Technologies Inc Has Reliable Dividends & Low Payout Ratio
Investors like growth stocks because of the potential for outsized gains. This doesn’t work as well when interest rates are going up, though.
The tech-heavy Nasdaq is currently in bear-market territory, down by 26% year-to-date. With interest rates still rising, it has room to go lower. What income investors don’t like about tech stocks is that they generally don’t provide dividends. As for the tech dividend stocks that do provide dividends, most of their payouts are pretty miserly.
Broadcom Inc (NASDAQ:AVGO) has a 2.9% dividend yield, Microsoft Corporation (NASDAQ:MSFT) has a 0.9% yield, and Nasdaq Inc (NASDAQ:NDAQ) has a 1.6% yield. No one is going to complain about getting free money, but when inflation is at 8.3%, those kinds of yields are underwhelming—especially in light of how badly tech stocks have been performing. AVGO stock is down by 13.5% in 2022, MSFT stock is down by 18.5%, and NDAQ stock is down by 25.5%.
Investors who want income and growth might want to take a look at Lumen Technologies Inc (NYSE:LUMN), a tech stock that provides safe, inflation-trouncing, ultra-high-yield dividends.
Lumen Technologies’ management has said its goal is to maintain an annualized dividend of $1.00 per share. During the first quarter of this year, LUMN stock returned $271.0 million to shareholders through its quarterly dividends. In May, the company’s board declared a quarterly dividend of $0.25 per share, for a yield of 8.4%. The payout ratio is just 48.5%.
Lumen Technologies Stock’s Performance
While not exactly on fire, LUMN stock has certainly been outpacing the broader market. As of this writing, Lumen Technologies stock is:
- Up by 10% over the last month
- Up by nine percent over the last three months
- Up by four percent over the last six months
- Up by one percent year-to-date
- Down by 14% year-over-year
In comparison, the Nasdaq is:
- Up by two percent over the last month
- Down by five percent over the last three months
- Down by 25% over the last six months
- Down by 26% year-to-date
- Down by seven percent year-over-year
Meanwhile, the S&P 500 is:
- Up by one percent over the last month
- Down by 0.5% over the last three months
- Down by 11.6% over the last six months
- Down by 13% year-to-date
- Down by 1.7% year-over-year
Tech stocks have trended significantly lower this year on rising interest rates, supply chain issues, the war in Ukraine, and concerns about a recession. Investor pessimism has also dragged LUMN stock lower.
Chart courtesy of StockCharts.com
Unlike many other tech companies, Lumen Technologies Inc is both profitable and cash-flow-positive. This helps explain why it’s able to pay an 8.4%-yield dividend. The average dividend yield on the Nasdaq is 1.4%.
About Lumen Technologies Inc
Lumen Technologies, formerly CenturyLink Inc, is a communications company that provides an array of infrastructure assets to residential, business, and government customers. (Source: “Lumen Investor Presentation: May – July 2022,” Lumen Technologies Inc, last accessed June 8, 2022.)
In the words of Lumen Technologies, “all emerging technologies rely on fiber.” The company has that covered, with approximately 500,000 route fiber miles, serving customers in more than 60 countries.
Through Lumen Technologies Inc’s edge computing technology, customers receive exceptional processing performance with low latency. Its “Quantum Fiber” service isn’t only quicker than that of the competition, but it’s also cheaper, at $0.07 per megabit per second (Mbps). The industry average is $0.09 per Mbps.
Two Asset Sales Expected to Generate $7 Billion
In an effort to focus on its key revenue drivers, Lumen Technologies Inc is selling two of its non-core assets.
In July 2021, the company announced plans to sell its Latin American business to Stonepeak, an infrastructure investment firm, for $2.7 billion. (Source: “Lumen to Sell Latin American Business to Stonepeak for $2.7B,” Lumen Technologies Inc, July 26, 2021.)
Lumen Technologies isn’t severing its ties with its Latin American business, however. It plans to “retain a strategic relationship” with the new company. This will include reselling and network arrangements that allow both companies to use each other’s fiber, data center, and other network assets. This transaction is expected to close in the third quarter of 2022.
One month after announcing the sale of its Latin American business, Lumen Technologies announced that it was selling its incumbent local exchange carrier (ILEC) business in 20 states—to funds managed by affiliates of Apollo Global Management, Inc. (NYSE:APO) for $7.5 billion. (Source: “Lumen to Sell Local Incumbent Carrier Operations in 20 States to Apollo Funds for $7.5 Billion,” Lumen Technologies Inc, August 3, 2021.)
Lumen Technologies will retain its ILEC assets in 16 states, as well as its national fiber routes and competitive local exchange carrier (CLEC) networks. The closing of this sale is expected to happen in the fourth quarter of this year.
Together, the two sales will generate net discretionary cash proceeds of $7.0 billion.
Lumen Technologies Inc Reports Great Q1 Results & Increases 2022 Guidance
For the first quarter ended March 31, Lumen Technologies announced that its net income increased by 26% to $599.0 million, or $0.59 per share, from $475.0 million, or $0.44 per share, in the same prior-year period. (Source: “Lumen Technologies Reports First Quarter 2022 Results,” Lumen Technologies Inc, May 4, 2022.)
Its total revenue in the first quarter of 2022 was $4.7 billion, down by seven percent year-over-year from $5.0 billion in the first quarter of 2021. The company reported net cash provided by operating activities of $1.4 billion, compared to $1.5 billion in the first quarter of 2021.
Lumen Technologies Inc generated free cash flow of $846.0 million in the first quarter, compared to $850.0 million in the same period of the previous year. The company ended the quarter with cash and cash equivalents of $366.0 million.
Lumen Technologies updated its 2022 outlook to include the upcoming closing of the ILEC transaction. The company currently expects to report adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of $6.9 to $7.1 billion for 2022, up from its previous forecast of $6.5 to $6.7 billion. It also expects to report free cash flow of $2.0 to $2.2 billion, up from its previous forecast of $1.6 to $1.8 billion.
The Lowdown on Lumen Technologies Stock
Lumen Technologies stock is a great telecom services stock that provides investors with safe and reliable ultra-high-yield dividends.
In the first quarter, Lumen Technologies Inc maintained healthy margins and strong cash flow, and it expects that its two previously announced large asset sales will close later this year. The company has maintained its $1.00-per-share dividend, has said it will evaluate the possibility of future share repurchases, and has reduced its net debt by $1.5 billion since the first quarter of 2021.
