NEW YORK (AP) — Shares of CenturyLink Inc. fell more than 22 percent Thursday after the phone company shaved its dividend by 25 percent, saying it will use the cash instead to buy back $2 billion of its shares.
The move, announced late Wednesday, sent dividend-seeking investors streaming for the exits. In afternoon trading Thursday, shares of the Monroe, La., company were down $9.35, or 22.4 percent, at $32.34. The day's low of $32.05 was the lowest point since Sept. 2009.
Analysts were divided on the move. Michael Rollins at Citigroup said it was "surprising and disappointing." The company is committing to investing more cash in its business and giving more to shareholders, but that will mean spending less on paying down debt and abandoning an investment-grade credit rating. He also noted that the company's new targets imply that it will be generating less cash in the future. He cut his rating on the shares to "Neutral" from "Buy."
Christopher King at Stifel Nicolaus said the sell-off is overdone.
"We don't believe the decision is as bad as it seems at first glance," he said. He noted that CenturyLink is set to start paying cash taxes in 2015, and that it would have had to reduce its payouts at that point in any case. Doing it early takes some potential for speculation out of the stock, he said.
Fitch Ratings on Thursday cut CenturyLink's long-term credit rating from "BBB-," the lowest rung of investment grade, to "BB+," the highest rung of junk or non-investment grade. The ratings action means CenturyLink can expect to pay higher interest on new loans.
CenturyLink also reported results for its latest quarter on Wednesday. It earned $233 million, or 37 cents per share, in the October-to-December period, more than double the $109 million, or 18 cents per share, it made in the same period a year ago.
Revenue fell 1.5 percent $4.58 billion.
Excluding amortization of goodwill from a string of acquisitions, CenturyLink earned 67 cents per share.
Analysts, on average, expected 68 cents per share on revenue of $4.59 billion, according to FactSet.
CenturyLink expects first-quarter revenue of $4.46 billion to $4.51 billion and adjusted earnings of 67 to 72 cents per share.