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Pro Analysis

JPMorgan upgrades telecom stock CenturyLink on its 9 percent dividend yield

Centurylink Center
Daniel Acker | Bloomberg | Getty Images
Centurylink Center

JPMorgan on Tuesday upgraded CenturyLink to overweight from neutral, citing as catalysts a 9 percent dividend yield and the proposed merger with Level 3 Communications, which are expected to lift the shares in 2017.

CenturyLink, a one-time rural landline phone company, in October announced an agreement to buy Level 3 Communications for about $24 billion, in a deal that's expected to accelerate its transformation into a more modern telecom player.

"We believe the Level 3 deal is a significant positive for CTL as it brings a higher enterprise mix (~75 percent of pro forma revenue), increased scale, revenue and EBITDA stability, and tax protection to help CTL pay its dividend," equity analyst Philip Cusick wrote in a note to clients.

Cusick notes that CenturyLink's dividend yield is at record levels when compared with the 10-year Treasury note, which has a yield of about 2.5 percent, and other telecom companies such as AT&T and Verizon, which have yields of 4.6 percent and 4.3 percent, respectively.