This Dividend Monster Is Shifting Gears

When Alaska Communications Systems (Nasdaq: ALSK  ) geared up for a fourth-quarter report this week, investors were looking for two things:

The regional telecom delivered these things and more. Shares soared as high as 20.7% overnight on the report, reaching levels not seen since management took an ax to the dividend expenses.

The cold, hard numbers played a part in this stunning jump: AlaskaComm froze analyst estimates with $0.05 of earnings per share on $87.5 million in sales. The revenue outlook for next quarter also came in $17 million above Wall Street estimates, pouring more fuel on the fire.

That's an early sign of solid revenue growth, and CEO Anand Vadapalli wants more of it in 2012. Big dividends will, as previously announced, take a back seat to flexible financial management and a rapid 4G network build this year. In other words, this dividend dynamo is taking a break to become a growth stock for a while.

AlaskaComm invested $52 million in capital expenses in 2011, up from $38 million in 2012. The 4G network is only months away from lighting up, though much work remains to be done before it's complete. Management expects to spend as much as $60 million on capital expenditures in 2012. When that project is complete, annual capex drops back to roughly $45 million.

When that happens, the financial pressure to keep dividends low will subside. Management still wants to pay back a lot of debt in the next few years because this leveraged operating model costs a fortune in interest payments. Interest payments were larger than free cash flows in 2011. Paying back expensive debt is the gift that keeps on giving for companies and investors alike.

So AlaskaComm will look very different for a while, at least from a dividend-hunting point of view. In the long run, I think management is making some smart decisions here, and the industry is changing rapidly anyhow. Verizon (NYSE: VZ  ) is stretching its wireless tendrils into Alaska right now, for example. Regional telecoms CenturyLink (NYSE: CTL  ) and Frontier Communications (NYSE: FTR  ) have gone on buyout rampages to stay relevant. There's no such thing as a totally safe double-digit telecom dividend anymore, though AlaskaComm may very well get back there in 2013 and beyond.

If the meaty dividend was all you every loved about this stock, you should also have a look at 11 rock-solid dividend stocks that can secure your retirement. This special report is free for a limited time, so get your copy right now.

Fool contributor Anders Bylund holds no position in any of the companies mentioned. We Fools don't all hold the same opinion, but we all believe that considering a diverse range of insights makes us better investors. Check out Anders' holdings and bio, or follow him on Twitter and Google+. We have a disclosure policy.

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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 March 04, 2012, at 11:00 AM, Elder830 wrote:

    Do you see FTR getting back to the $10 a share range?

  • Report this Comment On March 04, 2012, at 4:46 PM, LaMtnMan wrote:

    You describe CTL and FTR, in the same sentence, as "regional". When CTL meant CenturyTel, regional was an apt description. After acquiring Embarq, Qwest, and Savvis and becoming CenturyLink, I no longer consider the nation's third largest telecom to be "regional". CTL and FTR are no longer comparable. With only VZ and T being larger, CTL has climbed into the big leagues in virtually any measurement you use: subscriber count, miles of fiber, employee count, range of product offerings, etc.

    Comparing CTL and FTR is like comparing the Cardinals to the Toledo Mud Hens - same game, much different level.

    The only thing lacking in CTL's portfolio is a wireless carrier (they sold theirs to AllTel, years ago). Sprint would be a good pickup for them, reuniting the old Sprint landline areas (Embarq) and providing single-bill service throughout the 37 states CTL serves.

    Add in the international components for fiber networks and data centers and "regional" sounds silly, eh?

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