Everybody loves Frontier Communications
With second-quarter results fresh off the presses, it's time to take a look at Frontier's dividend health. Spoiler alert: It's good news.
Sales in the second quarter shrank by 3% year-over-year to $516 million as traditional landline customers continued to move over to cell phones. But the remaining customers tend to spend more, boosting the revenue per customer by 5% for residential accounts and 6% for the average business customer. So far, so blah.
But slower sales aren't necessarily a bad thing for Frontier, as earnings expanded from $0.09 per share to $0.11 per share. With fewer landline subscribers, there's less old-school equipment to maintain and no reason to install anymore of it. That leads to lower capital expenses (good for free cash flows) and depreciation charges (good for earnings). Free cash flows ballooned by 34% to $134 million, largely thanks to the lower depreciation costs.
So when you get down to brass tacks, Frontier's $78 million of dividend payments comes right out of free cash flows, which points to a sustainable dividend. Even better, the cash flows are growing.
Some dandy dividend payers aren't so lucky. For example, Terra Nitrogen
There's no growth left in any of these stocks, mired as they are in the thoroughly mature energy, landline telecom, and basic materials industries. Frontier is fighting that label and buying some growth, including the landline operations of Verizon
You're buying Frontier for the dividends, and there's absolutely nothing wrong with that.