Buyback Wednesdays – Lumen Technologies Announces A Two-Year $1.5 Billion Stock Buyback

An astonishingly large number of companies announced stock buybacks over the last week with 42 companies announcing repurchases compared to 27 in the prior week. It is interesting to note that 11 out of these 42 companies have announced buybacks of $1 billion or more.  A couple of huge buybacks that did not make our list of top 5 buybacks are, the $5 billion buyback by DuPont de Nemours (DD) and the $20 billion additional buyback by ConocoPhillips (COP) representing around 16% and 12% of their market caps at announcement respectively. DuPont dropped its acquisition of Rogers (ROG) last week and is now choosing to repurchase its own stock instead. 

The buyback that stood out last week was announced by Lumen Technologies (LUMN). Lumen, formerly CenturyLink, is a telecommunications company that provides communications, network services, security, cloud solutions, voice, and managed services.

The stock lost more than half its value over the last year and is currently trading at $6.34, close to a three decade low for the company. We have recently started seeing some insider buying at Lumen. On November 4, three different Directors picked up a total of 43,000 shares at prices below $6.

The company’s dividend had been shrinking over the years from a peak annual payout of $2.90 in 2010 to $1 in 2022. Given the decline in the stock price, the company was sporting a double digit dividend yield. Lumen Technologies announced in its Q3 earnings press release that it will eliminate its stock dividend and that there would be no dividend paid in Q4 2022. The company plans to replace the dividend with a $1.5 billion share buyback over the next 2 years. This represented nearly a fourth of the company’s market cap at announcement. The dividend payout would have cost LUMN approximately $2.0 – $2.1 billion over the next two years, so this decision is expected to save the company $500-600 million.

Lumen’s revenue grew significantly in 2018 because of the acquisition of Level 3 Communications in a deal valued at around $25 billion. The Level 3 deal was perceived as a takeover from the inside because Level 3 shareholders were willing to approve the deal if CenturyLink’s CEO and CFO retired. Eventually the entire management team at CenturyLink was replaced with Level 3 managers.

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