Dividend stocks can be a great way to supplement your income and help you save for retirement. However, investors need to be careful when investing in a dividend stock, especially a high yield, because payouts are never guaranteed and can always be cut or even eliminated entirely.
Any time that a dividend yield is more than 6%, investors should be taking a closer look at a stock to see whether or not it is sustainable and safe investment. One stock that falls into that category today is CenturyLink (NYSE:CTL).
Paying quarterly payments of $0.25, the stock's dividend yield is currently 7.6%. And that's higher than it would have been in recent months as the stock has climbed 19% over the last six months. A higher stock price will result in a lower yield overall.
But at well over 7%, it still could be a risky dividend payout for investors to rely on.
One area that can be helpful in determining the company's ability to continue on with its dividend payments is its statement of cash flow. If a company is generating enough free cash flow, the dividend may not be in trouble.
Over the trailing 12 months, CenturyLink's free cash has totaled $3.2 billion. During that time, the company has paid out $1.4 billion in dividends, well below that amount.
In only one of its four past quarters has CenturyLink's free cash not been higher than its dividend payments. That's a good sign and suggests that at least for the short term, the technology company's payouts may be sustainable.
