Between Wednesday afternoon and Thursday morning, three of the riskiest regional telcos will step up to report fresh quarterly results.
Frontier Communications Corp (NASDAQ:FTR) and CenturyLink, Inc. (NYSE:CTL) report after tomorrow’s market close. Windstream Corporation (NASDAQ:WIN) follows the next morning.
Things can still play out well for the regional telcos, but it’s important to understand where they are now, and where they are heading.
Revenue is slipping at all three companies — and it’s expected to drop between 2% and 8% for the regional telcos — because folks are cutting their landlines.
This isn’t a surprise. Folks are nixing their local phone service to save up for their costly wireless plans. Until we see some stability there, investors are merely playing a game of limbo here.
Let’s size up the upcoming reports and yields as of Monday’s close.
| Company | Latest Quarter
EPS (estimated) | Year-Ago
Quarter EPS | Yield |
|---|---|---|---|
| Windstream | $0.09 | $0.12 | 11.6% |
| Frontier Communications | $0.05 | $0.08 | 8.8% |
| CenturyLink | $0.67 | $0.65 | 6% |
Source: Yahoo! Finance.
As you can probably imagine, Windstream Corporation (NASDAQ:WIN) is the lone holdout when it comes to hacking away at its quarterly distributions.
Frontier Communications Corp (NASDAQ:FTR) cut its quarterly dividend from $0.25 a share to $0.1875 a share three years ago, and again to $0.10 a share last year. CenturyLink, Inc. (NYSE:CTL) went from distributing $0.725 a share every three months to $0.54 a share earlier this year. Class action lawsuits are piling up against CenturyLink, accusing it of misleading investors leading up to this year’s payout cut.
Windstream Corporation (NASDAQ:WIN) has stuck to its $0.25 a share quarterly rate since 2006, even though it hasn’t earned enough to cover its rate for a couple of years now. Roughly two-thirds of last year’s disbursements were actually a return of capital.
It isn’t a surprise that the least risky telco here is the one with the lowest yield. CenturyLink, Inc. (NYSE:CTL) is the only one earning more than the size of its dividend this quarter.
Frontier Communications Corp (NASDAQ:FTR), CenturyLink, Inc. (NYSE:CTL), and Windstream Corporation (NASDAQ:WIN) are trying to offset the landline customer defections by offering broadband connectivity and business services. It’s a good plan, even in the rural markets where they tend to concentrate so they don’t have to compete with the deep pockets of the national wireless rock stars.
However, all three companies are generating less revenue now than they were a year ago. Until that changes, the companies will continue to be among the riskiest plays in telecommunications. The declines don’t have to last forever. An improving economy may very well change things dramatically for all three companies. Investors just need to know that the risks are great as they dial in to these fat-yielding investments.
The article 3 Regional Telcos That Are Riskier Than You Think originally appeared on Fool.com.
Longtime Fool contributor Rick Munarriz has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.
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