It’s easy to see why a dividend investor would be attracted to telecommunications technology provider Lumen Technologies Inc. (NYSE: LUMN). Its current $0.25 per share quarterly dividend comes out to a plump 12.3% yield.

But can investors rely on that dividend quarter after quarter?

In the short term, probably. Longer term may be a different story.

This year, Lumen is expected to record its lowest free cash flow total since 2017. Free cash flow is forecast to drop from $3.6 billion to $2.2 billion.

Safety Net never wants to see free cash flow falling. If the decline continues, it could put a lot of pressure on the company’s ability to pay the dividend.

Lumen’s payout ratio is low, which is why I don’t expect an immediate dividend cut.

This year, Lumen is projected to pay out just 47% of free cash flow to shareholders in dividends. Anything below 75% is a confidence booster.

However, the company has cut the dividend twice in the past 10 years – once in 2013, when it dropped the dividend to $0.54 from $0.72, and once in 2018, when it slashed the dividend from $0.54 to the current $0.25.

The company also has a brand-new CEO. Kate Johnson has not yet signaled her intention when it comes to the dividend, but it’s not hard to imagine her cutting the dividend if free cash flow continues to deteriorate while she implements new plans and perhaps hires new personnel.

The combination of two dividend cuts and falling free cash flow does not give me confidence that the dividend is safe. If Johnson can turn things around to the point where free cash flow is projected to be higher in 2023, then the stock’s dividend safety will get an upgrade.

But for now, Lumen’s history of dividend-slashing and its plummeting free cash flow mean that you cannot consider the 12% yield safe.

Dividend Safety Rating: F

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