Windstream Dividend No Longer Fully Taxable

If you’re a shareholder in Little Rock’s Windstream Corp., listen up: The company announced last week that a change in its treatment of its 2012 dividends could result in income tax refunds.

Windstream had previously told shareholders that its annual $1 dividend for 2012 was entirely taxable. However, a revised report states that 66.4 percent of 2012 dividend income will be treated as nontaxable.

So now, if you got $5,000 in dividends, about only $1,700 of it was taxable. Shareholders, then, may want to file amended income tax returns for 2012.

The company also stated that future dividends will continue to be only partially taxable. Between 50 and 60 percent of its 2013 dividend will be non-taxable.

So why the change in tax treatment? Apparently these dividends are somehow different from normal dividends, but it’s almost impossible to say how.

On the company’s website, a “frequently asked question” about the “change in tax status” says the new tax basis for Windstream stock is the original price paid “adjusted for distributions that represent a return of capital.” But when we asked about that, the company repeatedly stressed that the dividend change doesn’t affect the company’s capital.

“The only thing that’s changing is how the investor has to treat the dividend,” said Mary Michaels, the company’s vice president of investor relations and capital markets. “Windstream has reached that point where not all of the dividends are considered taxable, and we expect that to hold going forward.”

Windstream’s ability to continue paying its traditional $1 annual dividend — a 13 percent yield on the stock as valued below $8 last week — has been much discussed by stock advisers, but the company insists that dividend is safe. And now it’s even more valuable.