Shares of Windstream
How it got here
The rural telecom stock lost more than 16% of its value yesterday, after reporting earnings that came in below Wall Street expectations for its fiscal first quarter. Windstream generated adjusted earnings of $0.13 a share on revenue of $1.55 billion for the period. Unfortunately, the Street was looking for EPS of $0.14 and $1.56 billion in revenue. While some investors believe this could be a red flag for future earnings, I think the market overreacted to the miss.
It's as though investors misread the company's recent acquisition of PAETEC as "PATHETIC" -- when in reality the purchase promises growth in Windstream's broadband services. This means Windstream will be better equipped to compete with bigger competitors such as AT&T
That's right; Windstream spoils shareholders with a dividend payout just shy of 9%. And, based on comments from the company's latest conference call, management feels confident in its ability to continue paying this dividend.
Of course there are other dividend payers like Frontier Communications
Frontier's residential and business landline users are disappearing as more affordable alternatives from cellular carriers such as AT&T and Verizon become available in rural areas. As a result, the company was forced to slash its dividend back in February, which greatly reduced the appeal of its 11.9% yield -- at least for investors who value a reliable payout. That's why, at least for now, Windstream looks like the better of the two.
Now let's throw in AT&T and Verizon to see how these industry peers measure up.
Windstream is holding its own with these telecom giants, as it tries to grow the business outside of its core landline operations. Meanwhile, AT&T is up 9% this year and boasts a solid 5.4% dividend yield. Verizon has a slightly lower yield of 5%, but is up almost 9% over the past year.
What the future holds
High-yielding telecoms such as Windstream can be a rewarding alternative to the 2% yield of 10-year Treasuries. I think the recent decline creates an opportunity to get in on a stock that should generate strong returns in the future. To get even more winning dividend plays, I encourage you to read this updated report from The Motley Fool's brightest analysts, titled: "9 Rock-Solid Dividend Stocks to Secure Your Future."