Why Frontier Communications Corp. Shares Fell 11.5% in June

Ironically, a pessimistic analysis of Frontier's dividend policy drove share prices lower and dividend yields higher.

Anders Bylund
Anders Bylund
Jul 6, 2017 at 7:47PM
Technology and Telecom

What happened

Shares of Frontier Communications (NASDAQ:FTR) fell 11.5% in June 2017, according to data from S&P Global Market Intelligence.

So what

The regional telecom didn't have much market-moving news last month, but The Wall Street Journal analyzed Frontier's ability to service its dividend payments in the future. That article sparked negative chatter around Frontier, ironically driving share prices down and the effective dividend yield up by more than 10%.

Businessman teetering on a high wire over a city.

Image source: Getty Images.

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Now what

Frontier's share prices have plunged 77% lower over the last 52 weeks, so the dividend remains generous with an effective forward-looking yield of 14% -- even after May's 60% payout cut.

That being said, even the new, low payout must be fed with nearly $300 million of cash per year. Frontier's trailing free cash flows stand at $560 million right now, leaving little room for management's planned debt reduction strategy once the dividend checks have been mailed.

This is a falling knife, not a tasty buy-in discount. Frontier shares don't belong anywhere near my own portfolio, and I would recommend that you follow my lead on this.