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Windstream Misses Guidance, Promises Dividends

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Windstream (Nasdaq: WIN  ) just released its first-quarter earnings, which disappointed analysts' estimates of an EPS of $0.14. Instead, the company netted $0.11 a share, a decrease of 42% from last quarter's EPS of $0.19.

Windstream's business-service revenues grew by 3.2% to $897 million in the first quarter year over year, and its consumer broadband service revenues jumped 5.9% to $113 million in the same time frame. But those segments represented only 68% of the telecom's total revenues in the quarter and couldn't offset a 6.3% decline in wholesale revenues nor an overall consumer service revenue drop of 2.6%. The final revenue tally was $1.55 billion, a decrease of 0.5% year over year.

Windstream's claim of $352 million in free cash flow was calculated by taking its adjusted operating income before depreciation and amortization, and "excluding merger and integration expense, minus cash interest, cash taxes and adjusted capital expenditures," according to an explanatory exhibit attached to its SEC filing.

But by my calculations, using this formula for free cash flow, the company had $212.7 million in free cash flow for the quarter. That figure brings Windstream's dividend to free cash flow ratio to 69%. This is a much better number than last quarter's super thin 96.7%. Income-hungry investors should be heartened by that trend.

Frontier Communications (Nasdaq: FTR  ) also came up with a homebrew FCF calculation on its latest earnings statement, one that gave it a very reasonable 39% dividend to FCF ratio. Using the standard FCF equation, though, made it a more realistic 63%. Still, that was much better than Frontier's 99.8% from last quarter! No wonder Frontier had sliced its dividend in half after that.

But what about the dividend?
But back to Windstream's own dividend. Its current yield of around 10% is the bait that lures in many of its shareholders, and one analyst during the company's conference call expressed concern about its viabillity. Frank Louthan of Raymond James and Associates asked: "[N]ow that you have come in more to the low end of the guidance, can you comment on your confidence in the dividend[?]"

Windstream CEO Jeffery Gardner's answer: "We feel so good about our ability to pay this dividend for a very long time ... [T]he cash flow generation capability of this business we've never felt better about."

That was the encouraging statement that most Windstream investors wanted to hear.

Windstream and Frontier offer some of the best dividends around, but for insight into some other income-producing stocks, ask for the Fool's special report on nine companies that offer rock-solid dividends. Don't wait too long. Get this report while it's still fresh -- and free!

Fool contributor Dan Radovsky owns shares of Frontier Communications. The Motley Fool has a disclosure policy. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

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Related Tickers

10/25/2016 1:21 PM
WIN $8.28 Down -0.02 -0.18%
Windstream CAPS Rating: **
FTR $4.12 Up +0.02 +0.37%
Frontier Communica… CAPS Rating: ***