Shares of Frontier Communications (FTR) fell 28% in 2016 and another 66% in the first half of 2017. The regional telecom's financial results have been a mixed bag lately, and Frontier recently slashed its dividend payments by 62%. Are shares a buy after these adjustments, or should investors still stay away from Frontier Communications stock?
The dividend story
Let's start with a quick dividend analysis, because Frontier has been an income investor's best friend for many years. The stock's lowest yield in the last 10 years was a still-generous 4.9% in the spring of 2015, and Frontier's yields raced higher than 20% as share prices plunged in early 2017.
That's where Frontier's management took action.
|
Dividend Pay Date |
Payout Per Share (split-adjusted) |
Total Dividend Cost |
Cash Payout Ratio |
|---|---|---|---|
|
June 30, 2015 |
$1.575 |
$106 million |
53% |
|
Sept. 30, 2015 |
$1.575 |
$189 million |
83% |
|
Dec. 31, 2015 |
$1.575 |
$176 million |
72% |
|
March 31, 2016 |
$1.575 |
$177 million |
95% |
|
June 30, 2016 |
$1.575 |
$176 million |
70% |
|
Sept. 30, 2016 |
$1.575 |
$178 million |
106% |
|
Dec. 30, 2016 |
$1.575 |
$176 million |
101% |
|
March 31, 2017 |
$1.575 |
$178 million |
56% |
|
June 30, 2017 |
$0.60 |
$68 million (estimated) |
28% (estimated) |
Data sources: Dividend.com and Frontier Communications.
After holding steady at $1.575 per split-adjusted share for more than two years, Frontier's quarterly dividend was lowered to $0.60 per share in an announcement on May 2, 2017. At the same time, the company also approved a previously announced 15-for-1 reverse share split and reported disappointing first-quarter results. Share prices fell 22% over the next couple of days as investors digested the one-two punch of lower payouts and continued customer losses.
Frontier CEO Dan McCarthy explained that the dividend needed to slow down in order to give Frontier more financial flexibility. "As we continue to execute on our strategy to deliver on the full potential of our strong assets and generate additional cash flow, we will optimize our capital allocation to ensure we strike a balance between investing in the business, paying down debt and returning capital to shareholders," he said.
So Frontier's dividend is down, and the company's cash flows have been earmarked for debt repayments rather than payout increases. Frontier's effective dividend yield remains generous due to sliding share prices, but you shouldn't expect any dividend payment boosts out of the company's management anytime soon.
Image source: Getty Images.
What's next?
McCarthy talks a good game, and promises to have his company back on solid financial ground soon enough. But Frontier often falls short of its own guidance targets and management needs to be held to its promises here. This is not made easier by the fact that Frontier is having trouble providing acceptable levels of service to its new customers in Florida, California, and Texas -- the three large markets the company acquired in a $10.5 billion deal with Verizon Communications in 2016.
So I would take Dan McCarthy's rosy debt reduction talk with a grain of salt. That doesn't make dividend increases any more likely, either. In fact, it's probably a good idea to stay away from Frontier Communications stock altogether.
