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Published: November 4, 2009
Nearly 1,000 U.S.-listed
companies offer Dividend Reinvestment Plans or "DRIPs" as a way
for shareholders to accumulate shares without using a broker.
These plans allow investors to automatically use their dividends
to buy more shares of the company's stock. The price may be at a
discount to the market price, and most DRIPs charge no
transaction fees, which makes the plans one of the least
expensive ways to invest.
About half the companies that offer DRIPs yield above 6%. Far
fewer, however, can boast of strong dividend coverage.
(Dividends that can be paid from current earnings are said to be
"covered.")
Only 70 companies have robust enough earnings to support their
current distributions.
The last element in evaluating potential DRIP investments is
dividend growth. Ideally, prudent income investors should seek
not only a dependable distribution but also one that grows at a
brisk pace, outpacing inflation at the very least.
Inflation has been nonexistent during the recession, but prices
rose +3.0% a year in the period from 1998 to 2008. That rate of
growth adds up to +15.9% price growth after five years. To
mitigate this, all an income investor needs is a company that
has increased its dividend by more than that during the past
five years.
Only one company has accomplished that.
CenturyTel (NYSE: CTL)
CenturyTel has increased its dividend by more than +1,000%
during the past five years. In June 2008, the company announced
plans to increase its annual dividend from $0.27 to $2.80. Even
before this large and unusual hike, the company's dividend
growth was strong. It grew +23.6% from 2003 to 2008. The company
yields 8.6% at its current price.
Based in Monroe, Louisiana, CenturyTel is a communications
company that provides voice, broadband and video services in 33
states. In an all stock deal it merged with Embarq last year.
The combined company now provides about eight million access
lines and has more than two million broadband customers.
The company's payout ratio has risen higher during the recession
and now stands at 87% of net earnings. The company's EPS has
given up some ground to $3.22 a share during the past 12 months,
down from $3.56 in 2008.
CenturyTel is fairly valued. It has a price-to-book ratio of
1.04. AT&T's (NYSE: T) is 1.51 and Verizon's (NYSE: VZ)
is 1.94. CTL is also cheaper on a price to earnings basis. At
9.78 times earnings, it's a full point below AT&T and two points
below Verizon.
The company has a modestly larger debt load because of the
Embarq merger. Still, its debt-to-equity ratio is still
reasonable at 91%. AT&T's, for comparison, is 72%, and Verizon's
debt-to-equity ratio is 74%.
The company has been repurchasing its shares for the past
several years. Since 2004, CenturyTel has spent more than $2
billion to buy back its shares, which increases its return.
CenturyTel's DRIP is completely without fees, and the price
investors pay is the average of the high and low price of common
stock on the cash dividend payment date.
You must be a shareholder to enroll in CenturyTel's DRIP. After
you buy even one share, call 800-969-6718 or
visit this link for
more information.
-- Anthony Haddad
Staff Writer
StreetAuthority |
