Shares of Frontier Communications (OTC:FTR) fell as much as 28% lower on Wednesday morning following the release of surprisingly strong fourth-quarter earnings -- and the suspension of the regional telecom's generous dividend policy.
Frontier reported an adjusted net loss of $0.59 per share in the fourth quarter, down from a breakeven reading in the year-ago quarter but much better than the $1.04-per-share loss Wall Street analysts had been expecting. Revenue fell 8% year over year to land at $2.22 billion, in line with analyst targets.
More importantly, Frontier's board of directors voted to suspend the payment of quarterly dividends in order to refocus the company's capital on repayment of debt balances.
As of last night, Frontier's dividend yield stood at a shocking 36%. That was a function of falling share prices, not overly generous dividend boosts. The company had lowered its payouts three times over the last decade, but the stock had also plunged 81% lower over the last 52 weeks.
Today, the year-over-year price comparison is a slightly steeper 86%. Remember that the stock took an 11% haircut when it reported the fourth-quarter results for fiscal year 2016 as well.
Sales are dropping in three of Frontier's four reporting segments. The balance sheet shows $17.7 billion of long-term debt but only $362 million of cash equivalents. Dividends gobbled up 40% of Frontier's free cash flows in 2017, leaving barely any room for debt reduction payments. At the same time, interest payments erased all of the company's operating profits before hitting the bottom line.
So this looks like a good time to tap the brakes on Frontier's dividend -- even if it won't be enough to save the company's struggling operations. Today's price drop made all kinds of morbid sense.