This article originally appeared on The DIV-Net October 22, 2008.
Linked here is a PDF copy of my detailed analysis of CenturyTel Inc (CTL). Below are some highlights from the above linked analysis:
Company Description: CenturyTel Inc. provides a range of telephone services in 25 states, with operations concentrated in Alabama, Arkansas, Louisiana, Missouri and Wisconsin.
Fair Value: I consider four calculations of fair value, see page 2 of the linked PDF for a detailed description:
- Avg. High Yield Price
- 20-Year DCF Price
- Avg. P/E Price
- Graham Number
CTL is trading at a discount to 1.), 2.) and 3.) above. Since CTL’s tangible book value is not meaningful, a Graham number can not be calculated. If I exclude the high and low valuations and average the remaining two, CTL is trading at a 36.5% discount. CTL earned a Star in this section since it is trading at a fair value.
Dividend Analytical Data: In this section I consider five factors, see page 2 of the linked PDF for a detailed description:
- Rolling 4-yr Div. > 15%
- Dividend Growth Rate
- Years of Div. Growth
- 1-Yr. > 5-Yr Growth
- Payout 15% of avg.
CTL earned three Stars in this section for 2.), 3.) and 4.) above. With a 15.1% Dividend Growth Rate, CTL will more than double its dividend every 5 years. CTL has paid a cash dividend to shareholders every year since 1974 and has increased its dividend payments for 35 consecutive years. It’s one year dividend growth rate exceeded its 5-year growth rate. This could indicate the growth rate is accelerating.
Dividend Income vs. MMA: Why would you assume the equity risk and invest in a dividend stock if you could earn a better return in a much less risky money market account (MMA)? This section compares the earning ability of this stock with a high yield MMA. Two items are considered in this section, see page 2 of the linked PDF for a detailed description:
- NPV MMA Diff.
- Years to >MMA
CTL earned both of the available Stars in this section. The NPV MMA Diff. of the $808,696 is in excess of the $2,500 minimum I look for in a stock that has increased dividends as long as CTL has.
Other: CTL is a member of the S&P 500, a Dividend Aristocrat and a member of the Broad Dividend Achievers™ Index. In June 2008, CTL announced plans to increase its annual dividend to $2.80, from $0.27 beginning in July and to accelerate its share repurchase plans.CTL has a relatively strong balance sheet driven by the less-competitive nature of the mostly rural markets it serves. The company should see some gains through broadband, but its overall growth will be limited due to competitive pressure on voice service. Like a most utilities, CTL has felt little impact from macroeconomic concerns. Risks include a dilutive acquisition, increase in customer migration or line losses.
Conclusion: CTL earned one Star in the Fair Value section, earned three Stars in the Dividend Analytical Data section and earned two Stars in the Dividend Income vs. MMA section for a net total of six Stars. Since my scale tops out at five, this quantitatively ranks CTL as a 5 Star-Strong Buy.
Using my D4L-PreScreen.xls model, I determined the share price could increase to $120.00 and CTL’s NPV MMA Diff. would still be around the $3,000 NPV MMA Diff. that I like to see. At that price CTL would yield 1.81%.
Resetting the D4L-PreScreen.xls model and solving for the dividend growth rate needed to generate the $3,000 NPV MMA Differential I’m looking for, the calculated rate is negative since the current yield of 8.65% is well in excess of the MMA Rate of 4.61%. A dividend growth rate of 15.1% was used in this analysis.
This is an intriguing stock. With strong cash flows to support its high yield, it is a stock I will give it serious consideration to purchase when the share price is lower than my buy below price of $51.17.
Disclaimer: Material presented here is for informational purposes only. The above quantitative stock analysis, including the Star rating, is mechanically calculated and is based on historical information. The analysis assumes the stock will perform in the future as it has in the past. This is generally never true. Before buying or selling any stock you should do your own research and reach your own conclusion. See my Disclaimer for more information.
Full Disclosure: At the time of this writing, I had no position in CTL (0.0% of my Income Portfolio) .
What are your thoughts on CTL?