Debt Refinancing Will Enable Dividend Growth for This High-Yield Stock
Over the past two years, Lumen Technologies (NYSE: LUMN) has moved aggressively to cut its interest expense by paying down debt and refinancing what it still owes at lower interest rates. This strategy has already had a significant impact, and the company is on track to make more progress in 2021. As a result, it will be freeing up cash flow that could be used to fund dividend growth.
In early 2019, Lumen -- then known as CenturyLink -- cut its dividend by more than 50%. This move displeased income investors who had favored the stock for its extremely high yield. However, it enabled the company to start cleaning up its balance sheet.
Over the past two years, Lumen has used the majority of its free cash flow to pay down some of its high-cost debt. Meanwhile, it has capitalized on the current low-interest-rate environment and its improving balance sheet to refinance other high-cost borrowings. As a result, its interest expense declined from nearly $2.2 billion in 2018 to around $1.7 billion in 2020.
Source Fool.com
