In the following video, Fool analyst Andrew Tonner takes a look at two of the most popular telecom stocks in the Fool universe: Windstream (Nasdaq:WIN) and Frontier Communications (Nasdaq:FTR). Which is the better buy in 2013?
With both of these stocks, the dividend is a crucial part of the equation, Andrew says. Frontier pays an impressive 8.6% dividend, but when you dig deeper it starts to get slightly alarming. A major problem for Frontier is the decline in rural telecom. That's resulted in dividend decreases over the past two years.
The company is not terribly leveraged, but investors should see the decrease as a red flag, Andrew says.
Windstream pays out an even higher dividend at 11%, and unlike Frontier, it has actually generated positive revenue growth. It has paid the same quarterly dividend since December 2006. But it also comes with risk, in the form of a high payout-to-cash-flow ratio that should make investors question the sustainability.
Andrew Tonner owns shares of Apple. The Motley Fool owns shares of Apple, Google, and Microsoft. Motley Fool newsletter services recommend Apple, Google, and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.