Should You Worry About This Massive Telecom Dividend?

CenturyLink (NYS: CTL) totally waxed Wall Street's earnings estimates in the first quarter. Adjusted earnings rang in at $0.68 per share, well beyond the average analyst target at $0.58. Revenue of $4.6 billion was right in line with the Street view. Just to rub it in, management raised earnings and cash-flow guidance for the second quarter just north of current analyst targets.

The telecom's integration of former rival Qwest is running ahead of schedule and budget, helping the bottom-line expectations in both the long term and the short.

Results like these tend to send shares soaring the next day, but CenturyLink investors have only enjoyed a modest 3% gain here. So what's held the stock back today?

For one, sector rival Windstream (NAS: WIN) also posted earnings overnight and ended up one of the market's biggest losers on Thursday. Some investors may take Windstream's troubles as a warning sign for regional and hardwired telecoms in general. Memories of another weak report from smaller competitorFrontier Communications (NAS: FTR) earlier this week also put a lid on CenturyLink investors' enthusiasm. Like CenturyLink, Frontier leans heavily on acquisitions to fuel top-line growth. Frontier's cash flows are starting to look weak unless you back out a plethora of non-standard items, and the already reduced dividend could be in further trouble.

I don't think those fears really apply to CenturyLink, though. This company's generous 7.6% dividend is powered by very solid cash flows. This quarter, CenturyLink paid out exactly half of its free cash flows in the form of dividends -- a safe and, most importantly, sustainable level.

One thing the telecom industry is known for today is its tempting dividend yields. Not all of them are as safe as I would like, but there are a few rock-solid dividend stocks I wouldn't mind sticking in a retirement portfolio for years of worry-free cash generation. Learn how to Secure Your Future With 9 Rock-Solid Dividend Stocks by reading our special free report. It's yours today, but only for a limited time.

At the time thisarticle was published

Copyright © 1995 - 2012 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.