Uncertainty Threatens Windstream Dividends

by Luke Jones  on Monday, Nov. 18, 2013 12:00 am  

Jeff Gardner, CEO of Windstream, says the company has transitioned to new revenue streams, but not all analysts agree. (Photo by Russell Powell)

Since its incorporation in 2006, Windstream has been shifting its business model away from the shrinking land line market and toward other, more profitable, telecommunication avenues.

But its latest financial quarters haven’t exactly thrilled some analysts, and there’s a growing worry that the changes haven’t been effective enough, potentially threatening the company’s attractive dividend.

For example, after the Little Rock company — which recently reorganized under the name Windstream Holdings Inc. — released its third-quarter 2013 financial results earlier this month, Morgan Stanley Wealth Management of New York City downgraded the company’s stock to “sell.”

Analyst Simon Flannery explained his reasoning for the downgrade in a report.

“While management has demonstrated a strong commitment to the dividend, we believe that soft quarterly results, rising cash taxes and debt obligations may pressure the board to consider cutting the dividend in February 2014,” Flannery said.

The company’s dividend pays out $1 per share per year, a yield of 12 percent or better at its current stock price in the low $8 range.

He also said that the company’s third-quarter earnings didn’t signal a turning point in the company’s shift to business services revenue.

The company’s third-quarter income was $31 million, down 34 percent in the same quarter of 2012. Revenue for the quarter was $1.5 billion, down 2 percent.

Similarly, second-quarter 2013 revenue was $40 million, down 21 percent from a year earlier, on revenue of $1.51 billion, a decline of 2 percent from the second quarter of 2012.

“Our revenue has decelerated,” CFO Tony Thomas admitted last week at a Wells Fargo conference in New York City.

Thomas said some of that has to do with the economy in general, but, he added, “that shouldn’t be a hindrance to our success. Overall, we had a solid quarter with some good signs of growth, but clearly I think we can do better.”

Still, Thomas said the company’s transition to a broadband and enterprise services company is nearly complete, with 60 percent of revenue coming from Internet and managed services for businesses.



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