Will Windstream Stay Firm on Its Supersized Dividend?

On Thursday, Windstream (NASDAQ: WIN  ) will release its latest quarterly results. The key to making smart investment decisions on stocks reporting earnings is to anticipate how they'll do before they announce results, leaving you fully prepared to respond quickly to whatever inevitable surprises arise.

Telecom stocks are well-known for their dividends, but Windstream's 12% yield stands out even among the top dividend payers in the industry. With peers having cut their payouts recently, many investors fear that Windstream could be next in line. Let's take an early look at what's been happening with Windstream over the past quarter and what we're likely to see in its report.

Stats on Windstream

Analyst EPS Estimate


Change From Year-Ago EPS


Revenue Estimate

$1.53 billion

Change From Year-Ago Revenue


Earnings Beats in Past 4 Quarters


Source: Yahoo! Finance.

Will Windstream's earnings catch up with its dividends?
Analysts have gotten more pessimistic about Windstream's earnings prospects recently, having cut their first-quarter estimates by $0.02 per share and cutting nearly $0.10 from their EPS consensus for the full 2013 year. The stock has also been a bad performer lately, dropping more than 11% since the end of January.

Windstream is a giant in the rural-telecom industry, with substantial exposure to old-style legacy landlines and other aging telecom infrastructure. Given the limited options available to its customer base, the company has been able to generate substantial cash flow from providing those services to rural residents. Yet more recently, the company and its peers have seen landline customers move to wireless and other alternatives, putting Windstream's core business into decline.

Unlike rival Frontier Communications (NASDAQ: FTR  ) , which has cut its dividend twice since 2010, Windstream has been able to maintain its $0.25-per-share quarterly payout for years. One reason has been Windstream's superior ability to make a transition toward higher-margin business services, which are more profitable for the company. Windstream now boasts about 60% of its revenue from business services, up from 40% in 2010. In contrast, Frontier actually saw business-related revenue and customer counts decline during the first quarter, and average monthly revenue per business customer fell sequentially as well.

A recent problem Windstream suffered shows the vulnerability of the company's landline business. Late last month, an outage led to a loss of service for residential long-distance and business toll-free customers. Although the company rapidly fixed the problem, the lack of details on exactly what happened has to be troubling for Windstream and its investors.

In Windstream's quarterly report, pay close attention to whatever the company says about its dividend going forward. Whether it keeps its payout unchanged or makes a cut, the more important thing to understand is the reasoning behind the company's decision. In the long run, the dividend is secondary to Windstream's plans for further growth going forward.

Windstream investors need to learn from Frontier's example. Find out more about Frontier's series of disappointing dividend cuts in our premium research report on the stock. Learn more about all the key opportunities and threats facing the company by clicking here.

Click here to add Windstream to My Watchlist, which can find all of our Foolish analysis on it and all your other stocks.

Read/Post Comments (1) | Recommend This Article (0)

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.

Add your comment.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2413957, ~/Articles/ArticleHandler.aspx, 9/30/2016 1:35:09 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated Moments ago Sponsored by:
DOW 18,323.46 180.01 0.99%
S&P 500 2,169.12 17.99 0.84%
NASD 5,311.56 42.40 0.80%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

9/30/2016 1:19 PM
WIN $10.23 Down -0.10 -0.92%
Windstream CAPS Rating: **
FTR $4.22 Down -0.04 -0.82%
Frontier Communica… CAPS Rating: ***