Frontier Communications (NASDAQ:FTR) had a rough year, struggling to integrate a major purchase of new customers in Connecticut.
The company brought in more revenue overall, but it lost residential and business customers while losing money in each of the three quarters it's reported on so far this year. It's fair to call these drops as being in line with industry norms, where increased pressure from cord cutting and growing competition have made things difficult for all cable and Internet providers. In addition, it's reasonable to say that Frontier has gone through some expected growing pains as it worked to take over the operations it bought from AT&T (NYSE:T) in Connecticut.
Still, 2015 was a rough year for the company that saw its stock steadily decline. Nonetheless, and even as it's losing money, Frontier maintained a $0.105-per-share dividend through all four quarters of 2015. That's a slight increase over the $0.01 it paid out each quarter during the three previous years.
That would make the stock more attractive to investors, but it's hard to see how it makes sense in at least the immediate future.
Why were things so difficult?
Adding the AT&T customers -- a process that began in late 2014 -- led to a record number complaints with Connecticut's Department of Consumer Protection, the state attorney general's office, and the state Public Utilities Regulatory Authority, according to The Hartford Courant. PURA has received more quality-of-service complaints about Frontier -- 124 in all -- in little more than a month than the combined totals this year of every other cable provider in the state.
"Our complaint level has dropped off," says Elin Katz, the state's consumer counsel, "but the complaints that do come in are very angry and say that many other people are frustrated. I don't know if that's true, that there is persistent dissatisfaction, but that's part of what needs to be explored in the technical meeting."
Frontier -- of which I am a customer in Connecticut -- did eventually bring the complaints under control toward the end of the calendar year. But it had a rocky start in its newest territory, which kept it from achieving the results it expected.
The company is borrowing money
In addition to continuing to integrate the former AT&T properties, Frontier is in the process of doubling in size because of a major acquisition that it just received final regulatory approval for. The company expects to complete its $10.54 billion acquisition of Verizon's (NYSE:VZ) wireline, broadband, and video operations and FiOS networks in California, Florida, and Texas in March.
To finance that deal, or at least part of it, Frontier is in the process of offering $6.6 billion in unsecured senior notes. The offering consists of $1 billion of 8.875% senior notes due in 2020, $2 billion of 10.5% senior notes due in 2022, and $3.6 billion of 11% senior notes due in 2025, the company said in a press release.
"Frontier intends to use the proceeds from the offering to finance a portion of the cash consideration payable in connection with its previously announced acquisition of the wireline properties of Verizon Communications in California, Florida and Texas and to pay related fees and expenses," the company explained.
A bigger dividend is a bad idea
Clearly, Frontier has a long-term strategy to massively grow its business. The AT&T deal was the first piece of that plan, and the Verizon acquisition continues to move things forward by more than doubling its size.
Ultimately, that approach may lead to a higher dividend, but it seems unlikely, and imprudent, for a a money-losing company that's borrowing billions to fund growth to increase its dividend. For the immediate future, it seems likely that Frontier will maintain current payouts but not raise them. Doing anything else before the company turns back to profitability -- something that's not a major concern during its expansion phase -- would most likely be foolish.