Part 6/9:
- Problems with the Business: Recognizing operational or market problems is crucial. Consistency in revenues and growth trajectories is essential for sustainable dividend payments. A significant drop in stock prices, coupled with poor business performance, often precedes a dividend cut.
Potential Yield Trap Examples
To illustrate these concepts, the podcast hosts discussed three companies, highlighting their conditions relative to the yield trap indicators:
1. CenturyLink (CTL):
Yield: Over 11%, indicating an unusually high dividend relative to the sector.
Debt: Debt-to-equity ratio of 1.62, markedly higher than AT&T.
Payout Ratio: Over 100% based on projected earnings.
Cash Flow: Paid out dividends exceeding free cash flow.