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

Page 1 of 2

CITADEL INVESTMENT GROUPWindstream Corporation (NASDAQ:WIN) has a very high dividend – yielding close to 12% – that scares a number of investors, which has only exacerbated the telecom’s downside. The stock has lost close to 30% year to date. Despite the company’s 400% payout ratio on an earnings basis, the annual dividend payout is only $588 million, where the company expects to generate upwards of $950 million in free cash flow for the current fiscal year. Billionaire Ken Griffin – founder of Citadel Investment Group – does happen to be one of Windstream’s top-name investors (see Ken Griffin’s newest picks).

Windstream’s big acquisition of late was the purchase of Paetec in late 2011. Newly acquired assets are expected to generate 35% of total revenues. The acquisition is expected to help generate over $50 million in synergies this year, and reduce operating expenses by about $100 million and capital expenditure by $10 million annually over the next two years. The telecom has also gained significant momentum in its enterprise market with nationwide coverage of fiber network cables. Some of the biggest initiatives for Windstream have been fiber-to-the-tower deployment and data center expansion. Another key growth avenue will be broadband expansion, with a focus on enhancing coverage and speed in under-served areas.

From a valuation standpoint, Windstream appears expensive at 35x earnings, but its forward P/E of 15x is well below major peers. Our main thesis is that Windstream’s dividend is secure, where its free cash flow payout for 2012 is only 70%. Windstream is also expected to lower capital spending in 2013, which should further strengthen its dividend coverage.

Level 3 Communications, Inc. (NYSE:LVLT) has been growing thanks to the acquisition of Global Crossing’s assets in 4Q 2011. Organic revenues are also expected to rise in the interim thanks to large enterprise and federal customer growth. The Global acquisition should help Level with revenue diversification and debt reduction, but the one downside that remains is debt. The telecom’s debt ratio is a whopping 65%, which has put strains on liquidity. We also remain cautious on Level’s future growth prospects, where its 5-year expected EPS growth is at a negative 50% CAGR. Billionaire D.E. Shaw did up his stake 500% last quarter (check out D.E. Shaw’s top picks).

What about the rest of Windstream’s competitors?

Page 1 of 2
blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 44 percentage points in 21 months Learn how!


The Top 10 States With Fastest Internet Speeds

10 Best Places to Visit in USA in August

Top 10 Cities to Visit Before You Die

Top 10 Genetically Modified Food In the US

15 Highest Grossing Movies Opening Weekend

5 Best Poker Books For Beginners

10 Strategies Hedge Funds Use to Make Huge Returns

Top 10 Fast Food Franchises to Buy

10 Best Places to Visit in Canada

Best Summer Jobs for Teachers

10 Youngest Hedge Fund Billionaires

Top 10 One Hit Wonders of the 90s

Fastest Growing Cities In America

Top 10 U.S. Cities for Freelancers

Top 9 Most Popular Free iPhone Apps

Top 10 Least Expensive Private Business Schools in the US

Top 15 Most Expensive Countries in the World – 2014

Top Businesses to Invest In

Top 5 Things You Might Be Doing Wrong With Your Business

Top 5 Strategic Technology Trends in 2014

Top Rags to Riches Stories

Parenting Behavior That Promotes Future Leaders

Top 5 Mistakes Made by Small Businesses

Top 5 Most Common and Potentially Devastating Financial Blunders

Top 5 Highest Paying Jobs for Web Designers

Top 6 Most Respected Professions that Also Pay Well

Top 5 Pitfalls Investors Should Avoid

Top 6 Lawyers and Policy Makers Under 30

Top 6 New Year’s Resolutions for Entrepreneurs

Top 7 Locations to Check in on Facebook

Top 5 Mistakes made by Rookie eBay Sellers

Top 7 eBook Publishers in 2013

Top 6 Health Industry Trends in 2014

5 Lessons for Entrepreneurs from Seth Godin

Top 5 Success Tips from Jordan Belfort – the Wolf of Wall Street

Best Master’s in Finance Degree Programs

Top 6 Earning Celebrities Over 50

The most expensive sports to play

Top 7 Earning Celebrities Under 25

Best 7 Online Courses to Take: Free Finance MOOCs

Top 6 Bad Habits that Promote Failure

20 Most Valuable Soccer Teams in the World in 2013

12 Most Expensive Countries for Foreign Students

Top 30 Most Influential Women in the World

Top 20 Most Expensive New Year Eve Shows

Top 5 Best Vocational Careers

Top 10 Jobs for 2014 by Salary Gain (Predictions)

Top 5 Digital Trends for 2014

Top 6 Things You Can Do To Increase Your Productivity

Top 9 Trending Smartphones in 2013


Enter your email:

Delivered by FeedBurner


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 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!