Saturday, September 11, 2010

Lucent Pays a Yield of 13%

Yes, you read that right. Lucent, the voice, data, and video communication services company, pays a very high yield. This particular stock is not the Lucent common stock that used to trade on the NYSE under the symbol LU, nor is it the Alcatel-Lucent (ALU) common stock which is the result of the merger between French communications company Alcatel with Lucent. Of course, I'm talking about Lucent's preferred stock, with the official name of Lucent Technologies Capital Trust I (LUTHP.PK). This is a 7.75% Cumulative Convertible Trust Preferred Security which was first issued in 2002. The stock pays $19.375 per quarter, giving it a current yield of 10.2%.

If you think that Alcatel-Lucent is a survivor, and you like high income, it may be worth taking a closer look at this investment. It is convertible into the common shares but it is far away from conversion, as the conversion share price is 24.80. Could the common go that high before 3/15/2017, the trust's maturity date? Stranger things have happened, but even if it doesn't, as long as the company stays in business, you will also make about $240 per share in capital appreciation as the stock recently traded at $760 per share. This boosts the yield even higher, giving it a yield to maturity in excess of 12.9%.

Will Alcatel-Lucent survive? The stock is trading at its cash per share, which doesn't mean much, as the company carries a huge amount of debt at $6.1 billion. On the plus side, it has the same amount of cash. Although the company has been reporting negative earnings, the operating cash flow has been running at $380 million and levered free cash flow is at $1.1 billion.

So if you are looking for an income speculation, this may be the preferred stock for you.

Author owns ALU.


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