Windstream logo

Image source: Windstream.

Windstream Holdings (NASDAQ:WIN) reported second-quarter results before Thursday's opening bell. The communications services operator beat Wall Street's earnings expectations and raised full-year revenue guidance. Windstream shares opened 7.1% higher on the news, but retreated to a milder 3.2% gain by noon.

Analysts were expecting a net loss of $0.61 per share on $1.4 billion in total sales. Windstream met the revenue target and delivered a smaller adjusted loss of $0.48 per share.

Consumer service revenues held steady year over year at $314 million, despite serving 5% fewer households in the 2015 quarter. Enterprise sales posted a modest increase, driven by increasing subscriber numbers in that category. In the small business segment, Windstream sacrificed some top-line sales to double down on higher-margin sales.

Management tightened the guidance range for full-year service revenue around the top end of previous projections, holding all other 2015 forecasts steady. Since services account for roughly 97% of Windstream's overall sales, it's fair to see the segment as a proxy for Windstream as a whole.

Using $3.2 billion of the proceeds from spinning off networking assets under the new Cable Sales & Leasing (NASDAQ:CSAL) ticker, Windstream paid down 34% of its long-term debt to unlock annual interest payment savings of $170 million. The company still holds on to roughly 20% of CS&L's shares, currently valued at $624 million, which it plans to sell in the open market and use the resulting cash to move debt balances even lower.

The morning of Aug. 16, CS&L will publish its first quarterly report as a stand-alone business. Keep an eye on that report for clues on where Windstream's stock holdings are going next. Strong results there will increase the value of Windstream's CS&L ownership, accelerating and strengthening the planned debt reduction.

CS&L shares briefly spiked as much as 5.5% higher based on Windstream's news, before investors realized that the two companies run very different operations and might report widely divergent results. The stock has since backed down to a 1% loss.

Keep in mind that Windstream's own market cap is just $548 million today. In other words, the CS&L share reserves are valued higher than the entire Windstream entity, effectively placing a negative value on the business itself. However, Windstream's enterprise value is hardly negative, standing at $5.5 billion.

Windstream CEO Tony Thomas

Windstream CEO Tony Thomas. Image source: Windstream.

The company also announced a quarterly dividend of $0.15 per share, consistent with earlier plans, payable to shareholders of record as of Sept. 30. Moreover, Windstream kicked off a share buyback program, reserving up to $75 million for repurchases over the next 17 months.

"Windstream stock is significantly undervalued and a share buyback is an attractive investment and an efficient way to return capital to shareholders," said Windstream CEO Tony Thomas in a press statement. "The new business unit structure has sharpened our focus and is driving operational excellence. The board and management team are confident in the future and remain focused on enhancing profitability and creating value for our shareholders."

Windstream shares have lost more than half their value since spinning off CS&L and running through a 7-for-1 reverse split. At the same time, CS&L shareholders have suffered nearly a 30% decline. At these prices, Windstream offers an effective dividend yield of 11.5%, right in line with CS&L. I can't help but being intrigued by Windstream's flexible operations married to fantastic dividends, and I'm putting this stock on my short list of dividend plays to watch. CS&L might follow, but I'd rather see a couple of quarters' worth of stand-alone operations and results first.

Anders Bylund has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not 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.