Last week, Lumen Technologies (NYSE:LUMN) reported its fourth-quarter and year-end results for 2021. The technology and communications company finished the year with revenue of $19.7 billion declining 5% from 2020 as none of its segments were able to generate any growth.
And the problem is that this year could continue to be a challenging one for the company. Lumen reported an adjusted EBITDA profit of $8.4 billion in 2021. But for 2022, it projects that will only be as high as $6.7 billion. And its free cash flow will only be between $1.6 billion and $1.8 billion– about half the size of the $3.6 billion it generated this past year. The good news for income investors is that as bad as this may seem, the dividend may still be okay.
Lumen pays about $1.1 billion in dividends each year, and so that amount of free cash flow could still support the current payout. But it's concerning nonetheless, as the company slashed its quarterly dividend payments in 2019 from $0.54 to $0.25. And if its free cash tightens, there could be potential for another rate cut. For now, however, the business looks to be okay, and that's why its 9.2% yield may be safe.
The company is investing into fiber which should drive more growth in the long term and so while the short term may be a concern, there could be a recovery for Lumen if you're willing to ride it out over the long haul.
In the past year, Lumen's shares have fallen by more than 12%. For investors willing to take a chance, this could be an underrated investment to hold right now.
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