Will Windstream's Dividend Still Stand After This Quarter?

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Three months ago, Windstream (Nasdaq: WIN  ) missed analysts' first-quarter earnings estimates by a penny. That disappointment pushed the stock into a 14% freefall between earnings-release eve ($11.26) and the second day after the announcement ($9.48). That was the bad news.

The good news, for those addicted to Windstream's generous dividend payouts, was this statement by CEO Jeffery Gardner during that quarter's conference call: "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's great, but how does Gardner define "a very long time"? Will the current 10% yield still be available beyond the upcoming second-quarter earnings release?

Will it have to do what another second-tier telecom, Frontier Communications (Nasdaq: FTR  ) , had to do to make up for the debt it had incurred in its acquisition spree? Frontier had tripled its size two years ago by buying a mess of Verizon's (NYSE: VZ  ) cast-off resources.

Frontier investors had become quite used to high double-digit returns over the years, and they had the vapors when the carrier halved its dividend starting in the first quarter of this year.

Windstream, too, had made some pricey acquisitions recently. The finalization of its purchase of PAETEC for $2.3 billion gave it a national fiber footprint, but that deal could just as easily gone sideways. Some PAETEC shareholders weren't happy with the amount Windstream offered and threatened to sue.

The differences were eventually settled, but investors were a bit nervous about seeing the company spend so much money. So when that deal was finally settled, Windstream CFO Anthony Thomas also felt it necessary to reassure investors. During the Q3 2011 conference call, he said, "[T]he steps we are taking ... [will] provide security toward the most attractive dividend yields in the S&P 500."

Some things to watch for in Windstream's upcoming earnings release will be just how much that PAETEC acquisition has contributed to the top and bottom lines, and just how much cash flow the company can generate. Will the numbers back up Gardner's confidence in his company's "cash flow generation capability"?

For many investors, dividends are of supreme importance, and companies like Windstream and Frontier are certainly hard to resist. Their dividends have provided some of the highest yields in the market, and Frontier -- even after that traumatic cut in its dividend earlier in the year -- still yields almost 9%. For Frontier's complete story, sign up for this report. It's a must-read for anybody with an interest in Frontier.

Fool contributor Dan Radovsky owns shares of Frontier. 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. The Motley Fool has a disclosure policy.

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