2012: The Year Windstream Got the Air Knocked Out of It

In these waning days of 2012, there's a chill in the air and snow in the forecast. What better time of year to curl up by the fire and ponder: What went wrong with the stocks you picked back in January? What went right? And should you keep these stocks in your portfolio, or go out and find something new?

That's what we aim to do today, as we flip back the calendar, and consider the year that was at Windstream  (NASDAQ: WIN  ) .

A few Foolish facts about Windstream

Year-to-Date Stock Return

(23.8%)

P/E

35.3

Dividend Yield

11.3%

1-Year Revenue Growth (YTD)

50.7%

1-Year Profit Growth (YTD)

(15.5%)

CAPS Rating (out of 5)

***

Source: Motley Fool CAPS.

What happened at Windstream this year?
Solidly profitable and boasting a dividend yield of 11.4%, you'd think rural telecom services provider Windstream would be a bit more popular with investors in today's yield-hungry environment. Instead, here we sit at the tail end of 2012, with Windstream lagging the rest of the market by a good 40 percentage points, and stuck with an anemic three- star rating on CAPS. What went wrong?

Actually, things started out pretty well for Windstream in 2012, with the stock notching a respectable 6% gain in the first couple of months. If the stock had managed to keep that up for the remainder of the year, then right about now we'd be looking at a 36% gainer, instead of a 24% loser. Alas, it was not to be.

Worries that Windstream might be forced to follow fellow telco Frontier Communications (NASDAQ: FTR  ) in cutting its dividend never quite materialized. (At least, not yet.) But in attempting to grow its network and compete with larger rivals AT&T (NYSE: T  ) and Verizon (NYSE: VZ  ) on the national stage (by buying PAETEC), Windstream strained its balance sheet with a large slug of debt. True, the acquisition brought with it great gobs of incremental revenue (see the table above) -- but it also brought a turn to net losses (see also above).

By May, this was becoming evident, as Windstream reported revenue and earnings less than Wall Street had expected, sparking a one-day 16% sell-off. Meanwhile, investors continue to grumble over the fact that Windstream's weak profits currently suffice to cover just one quarter of the dividends it's promised to pay out.

As 2012 draws to a close, and 2013 begins, don't expect those worries to abate. At least, not until Windstream shows itself capable of generating far more profit than it's done so far. Or until the worries become actually, and Windstream puts the inevitable dividend cut behind it.

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Read/Post Comments (1) | Recommend This Article (2)

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 20, 2012, at 3:02 PM, sosowong wrote:

    Well Rick, According to the "Fool" Win has been closing its doors for several years now. I've maintained an average 10 percent return on my investment over the last 3 years.....all the while you guys have predicted the dividend would be cut numerous times. Don't really keep up with any of your other predictions because your credibility has dropped to near zero with all the misinformation you have provided on WIN. As proof..... I can remember when a posting such as this would have an impact on the price of the stock and now it's like nobody is listening. Perhaps if you understood the business you would see a different oppourtunity here. Maybe you should try and predicting the weather,

    Like the saying.....better to be thought a fool than open your mouth and remove all doubt. Or put it print and they'll never forget!

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