Why Alaska Communications Had a Frosty 2011

As 2011 comes to a close, it's a great time to look back at what happened to the stocks that interest you. By making sure you know the important things that a company accomplished -- as well as the setbacks it experienced -- you can make a better decision about whether it's a smart investment for your portfolio.

Today, let's take a look at Alaska Communications (Nasdaq: ALSK  ) . As its name suggests, the telecom serves the state of Alaska by providing voice, data, and broadband Internet services. But despite luring investors with a big dividend yield that's now above 20%, the stock has done nothing but drop this year. Below, I'll take a closer look at the events that moved shares of Alaska Communications this year.

Stats on Alaska Communications

Year-to-Date Stock Return (58.5%)
Market Cap $193 million
1-Year Revenue Growth 2%
Net Loss, Trailing 12 Months ($3 million)
Dividend Yield 20.1%
CAPS Rating ***

Source: S&P Capital IQ.

Why did Alaska Communications plunge this year?
To all appearances, Alaska Communications appears to be a solid company paying reliable dividends. Although the company posted a net loss over the past 12 months, its free cash flow is much healthier at more than $27 million.

But that free cash flow isn't enough to cover the dividend that Alaska Communications is paying out. Just as Frontier Communications (NYSE: FTR  ) had to cut its dividend by 25% in response to free cash flow concerns, the Alaskan telecom might have to follow suit. With the board of directors reportedly looking at cutting the dividend, Alaska Communications shareholders have responded by selling off the stock.

Moreover, the company has been somewhat behind the curve, strategically speaking. As late as 2008, Alaska Communications was making big expenditures to boost fixed-line service. That stands in stark contrast to both big telecoms AT&T (NYSE: T  ) and Sprint Nextel (NYSE: S  ) as well as fellow rural telecom companies Windstream (Nasdaq: WIN  ) and CenturyLink (NYSE: CTL  ) , which tend to use landlines as a gateway to get customers to order higher-margin broadband services.

The worst news, however, could be potential competition from Verizon (NYSE: VZ  ) , which intends to enter the Alaskan market. That could leave Alaska Communications scrounging for scraps as Verizon focuses on the most profitable segments of the business -- and it certainly explains why shareholders are so pessimistic.

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Click here to add Alaska Communications to My Watchlist, which can find all of our Foolish analysis on it and all your other stocks.

Fool contributor Dan Caplinger doesn't own shares of the companies mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool has a disclosure policy.


Read/Post Comments (4) | Recommend This Article (4)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On December 21, 2011, at 3:52 PM, RICHARDFC33 wrote:

    Interesting blog at Seeking Alpha about the relationship of ALSK with VZ at http://seekingalpha.com/article/301839-an-acquisition-of-ala...

  • Report this Comment On December 22, 2011, at 2:06 AM, CommonSense2 wrote:

    This certainly is an eye opener. Not that it would make sense for Verizon to buy ACS as it would except for the large amount of truly rural areas (with which Verizon has no expertise). The assertion that ACS is spending a lot of land line infrastructure is news to me. What I've seen is a big push on selling their interstate fiber bandwidth and wireless cellular (with which they are extended network for Verizon). Their consumer internet service is moribund, their email service for consumers is pathetic (search FB for ACSFixYourEmail), other than in Anchorage, getting a 1mb DSL connection is remarkable, faster is pretty unbelievable. For cellular, I hope Verizon will give AT&T a run for their $ as their service is pretty spotty and they don't seem to plan to expand or improve their coverage area. For what we pay for communications, it's pretty pathetic.

  • Report this Comment On December 22, 2011, at 2:09 AM, CommonSense2 wrote:

    I should add that paying big dividends is probably because ACS executives and former executives own a large amount of stock, becoming millionaires and amongst the 1%.

  • Report this Comment On December 22, 2011, at 7:12 PM, jonpete69 wrote:

    " Frontier Communications had to cut its dividend by 25% in response to free cash flow concerns..."

    That is not why they cut the dividend. They issued 678 million new shares in connection with buying landlines from Verizon. This increased the number of shares from 349 million to over a billion shares. They reduced the dividend to be able to expand the business with the related tripling of the outstanding shares.

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