Windstream Corporation (WIN): One Heck of a Dividend Play

Telephone & Data Systems, Inc. (NYSE:TDS) is a diversified telecommunications company paying a dividend yield that is well below major peers at 2.2%. Sales are expected to only be up 2% in 2012 and 2013, but it does own an 80% stake in U.S. Cellular. Future benefits should come from U.S. Cellular, where the mobile company expects a pickup in average revenues per user and higher mobile adoption. This, in part, will hedge the loss of physical lines that Telephone & Data is experiencing. Worth noting is that Steven Cohen was dumping over 80% of his shares last quarter (check out Steven Cohen’s top picks).

TW Telecom Inc (NASDAQ:TWTC), meanwhile, does not pay a dividend and trades at a rich P/E ratio of 50x. The data networking company expects revenues to be up to $1.59 billion in 2013, up from $1.47 billion in 2012. TW’s Internet segment is driving growth, supported by the adoption of metro fiber Ethernet services by enterprise customers. Billionaire George Soros was one of TW’s biggest fans after adding the stock to his portfolio last quarter (check out George Soros’ new picks).

CenturyLink, Inc. (NYSE:CTL) made a key acquisition in 2011, buying Qwest Communications, but the telecom is expected to continue to see pressure on voice services and land line losses. Much like Windstream, CenturyLink’s dividend appears questionable at first glance, being a 200% payout of earnings at a 7% yield. It does appear that the telecom has sufficient free cash flow to cover its dividend, though, as its payout is roughly 30% of cash flow from operations. Jim Simons is one of CenturyLink’s top investors (check out Jim Simons’ key bets).

In short, we believe the interim growth for Windstream might be limited given competitive pressures, but we are confident in its ability to generate free cash flow to fund its dividend. For more coverage, continue reading below:

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