Will Windstream's Leadership Preserve Its Dividend?

I've been looking at Windstream (NASDAQ: WIN  ) , a rural telecom company that has attracted investors with an impressive dividend yield. Yet with Windstream and its peers all facing many of the same challenges in dealing with major acquisitions in the recent past, does the company have the strength of leadership at the helm to navigate through tough waters?

I've been crafting a premium research report on Windstream that goes into more detail about the rural telecom company. Let's take a closer look at who's running the show at Windstream.

CEO Jeffery Gardner has been at the helm at Windstream since its formation in 2006. Prior to that, he served as CFO at Alltel and has had various roles throughout the communications industry since 1986.

Gardner also serves on Windstream's board of directors, but he doesn't act as its chairman. That honor goes to Dennis Foster, who served as lead director of Windstream since mid-2006 and who took on the role of chairman in early 2010. With a long history in the communications industry, Foster has worked at Sprint (NYSE: S  ) , 360 Communications, and GTE in a management role. He's also served on boards at Alltel, NiSource (NYSE: NI  ) , and YRC Worldwide.

Unfortunately, neither Gardner nor Foster have a clear alignment of their incentives with those of shareholders. Gardner owns roughly 1.5 million shares of stock worth about $15 million at current prices, but that represents barely a quarter percent of the company's outstanding shares. Meanwhile, Gardner earned almost $9.8 million in compensation in 2011, with $6.5 million of that coming from stock awards. Although some of Gardner's awards are performance-based, the steady decline in stock price during 2011 apparently wasn't enough to trigger a decrease in compensation. Moreover, Gardner has an employment agreement that would pay him almost $3 million in severance if he's terminated without cause or if he quits for "good reason" -- including a material reduction in compensation.

For his part, Foster has an even smaller stake worth roughly $2.6 million. He earned $266,000 as a director, of which he got slightly more than half in the form of common stock and restricted stock awards.

Gardner emphasizes his belief that Windstream remains on the right track in following its strategy over the past several years. As he said in a recent conference call, "The power of a nationwide network is significantly enhancing our ability to win larger, multi-location enterprise deals, and our sophisticated product offerings and brand promise of personalized service are resonating very well. The PAETEC integration activities are on track, and we are making solid progress as a combined organization. In summary, I am confident in our strategy and our ability to execute on our plans." And in Windstream's most recent conference call, Gardner emphatically said, "Windstream's management team and board of directors unanimously support continuing to pay our dividend at its current rate and believe it is the best way to create value for our shareholders."

In general, Gardner seems to have some employee support, although it's not overwhelming. According to Glassdoor, about 57% of those rating Gardner approve of his job performance as CEO.

Windstream has able leaders with plenty of experience at the helm. Yet shareholders still have to question whether they can count on the company's management to put shareholder interests first.

Learn more
Stay tuned for further excerpts from my premium report on Windstream. In the next part of this series, I'll turn to several areas to keep your eyes on as Windstream moves forward.

Learn more about Windstream rival Frontier Communications by reading our premium research report on the stock. Both Frontier and Windstream have juicy dividends, but can the good times last for rural telecom payouts? In the report, we walk you through all of the key opportunities and threats facing the company. Better yet, you'll receive a full year of updates to boot. Click here to learn more.

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  • Report this Comment On February 22, 2013, at 2:31 PM, prginww wrote:

    NEW YORK | Tue Feb 19, 2013 9:39am EST

    Feb 19 (Reuters)

    "Windstream continues to produce substantial free cash flow that enables us to invest in our business and reduce our debt while continuing to pay our $1 annual dividend," Chief Executive Jeff Gardner said in a statement.

    The company also reported a fourth-quarter profit of $10 million or 2 cents per share compared with a loss of $35 million or 7 cents per share in the year-earlier quarter on revenue that rose to $1.54 billion from $1.21 billion.

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