Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

Frontier Communications Corp (FTR) and Windstream Corporation (WIN) Dodge CenturyLink’s Bullet

Things could’ve been worse — far worse — for Windstream Corporation (NASDAQ:WIN) and Frontier Communications Corp (NASDAQ:FTR) investors this week.

Fellow regional telco CenturyLink, Inc. (NYSE:CTL) slashed its dividend last week, giving Windstream and Frontier the perfect opportunity to sneak their way onto those coattails as they reported fresh quarterly results this week.

The timing also seemed right.

Frontier Communications Corp (NASDAQ:FTR)It was a year ago during the prior year’s fourth quarter report that Frontier cut its quarterly distributions rate from $0.1875 to $0.10. Frontier has chopped its payouts twice over the past three years.

Windstream has held firm to its $0.25 a share quarterly dividend since late 2006, but it’s easy to argue that it’s due for a reality adjustment. Profitability has been falling on an annual basis for several years now.

It isn’t easy being a regional provider of telecommunications services these days. They’re losing landline customers, naturally. The plan to make that back by providing broadband connectivity and business services isn’t always enough.

However, all three companies know that investors aren’t buying in for their good looks or personalities. Fat yields are attracting income chasers, and the companies know how to shake those moneymakers.

Even CenturyLink’s cut — going from $0.725 a share every three months to just $0.54 a share — merely adjusts the yield to what would’ve been 8.5% today to a still-robust 6.3%. Good luck finding that in the high-grade fixed income market.

“Windstream continues to produce substantial free cash flow that enables us to invest in our business and reduce our debt while continuing to pay our $1 annual dividend,” Windstream’s CEO notes in this week’s earnings release. “Our management team and the board of directors unanimously support continuing the dividend at its current rate because we believe it is the best way to create value for our shareholders.”

Frontier points out that even though free cash flow declined by 13% in 2012 that last year’s dividend cut means that it only returned 41% of its free cash flow to shareholders through distributions in 2012. Windstream, on the other hand, paid out an uncomfortable 77% of its adjusted free cash flow.

This doesn’t mean that things will end badly. Sector consolidation will buy some time. New opportunities may arise. There may even be improvement as the economy crawls toward a recovery. Windstream points out that it expects its payout ratio to improve this year as a result of lower planned capital expenditures.

However, investors still can’t get comfortable with the chunky yields here. CenturyLink’s cut last week — and Frontier’s adjustment last year — are cruel reminders that dividends are only as sustainable as the business models.

The article Frontier and Windstream Dodge CenturyLink’s Bullet originally appeared on and is written by Rick Aristotle Munarriz.

Longtime Fool contributor Rick Aristotle Munarriz has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

Biotech Stock Alert - 20% Guaranteed Return in One Year

Hedge Funds and Insiders Are Piling Into

One of 2015's best hedge funds and two insiders snapped up shares of this medical device stock recently. We believe its transformative and disruptive device will storm the $3+ billion market and help it achieve 500%-1000% gains in 3 years.

Get your FREE REPORT and the details of our 20% return guarantee today.

Subscribe me to Insider Monkey's Free Daily Newsletter
This is a FREE report from Insider Monkey. Credit Card is NOT required.
Loading Comments...

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 102% in 3 years!! Wondering How?

Download a complete edition of our newsletter for free!