Frontier Communications (FTR) and the 12% Dividend

Telecomms firm Frontier Communications (FTR) is yielding 12% in dividends. Despite the great results history, the future of the dividend is not a sure thing.

Fancy a stock which is paying more than 12% dividend yield? Then one stock to consider adding to your portfolio is Frontier Communications Corporation (FTR). The stock is currently the best dividend payer in the S&P 500.
 
This is not a once off thing either.
 
Since 2004 where shareholders scored a $2 special dividend as part of a corporate re-shuffle which saw the name change from Citizens Communications Corporation, the company has consistently paid a 25c dividend every quarter. Consistent dividends and the ability to throw off free cash is something that shareholders will always appreciate.
 
The company is one of the nation's largest rural local exchange carriers and its offering includes local and long-distance telephone service, broadband , digital television and technical support to customers in 24 states. Frontier (FTR) also bought approximately 4.1m access lines (as of March 31, 2010) from Verizon Communications as it expanded its network.
 
When the company reported first quarter results early in May, it showed revenue of $519.8m, operating income of $161.9m and net income attributable to common shareholders of Frontier of $42.6m, or $0.14 per share.
 
Free cash flow for the first quarter was $152 million and the company's dividend represents a payout of 52% of free cash flow. 
 
Maggie Wilderotter, chairman and CEO of Frontier Communications (FTR) told investors, "The market continues to show confidence in Frontier and our transformational transaction with Verizon, a sentiment that was echoed recently in the approvals from the states of Oregon, Washington and Illinois. We expect to close the transaction at the end of this quarter, and look forward to bringing increased broadband to our new communities."
 
With the group reporting a 4% rise in data and internet services revenue year on year, the company seems well positioned for growth and dividends.
 
A cautionary note: telecoms companies with large fixed line exposure generally yield high dividends presently because investors do not believe their revenues and income levels are sustainable as people continue to substitute mobile phones for fixed lines.

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Comments

  • M Artin

    June 14, 2010

    I predict they'll stop paying this dividend afte rthe deal with VZ goes through and all the VZ shareholders dump their free FTR shares. Just a thought.

  • Brian

    June 15, 2010

    One thing to consider about the people going from landline to mobile phones is that FTR concentrates on rural areas, which don't have as reliable of cell phone service as urban areas. Also, people in these areas tend to be more loyal to companies than their urban counterparts. This will slow the erosion of FTRs landline business. Conversely, rural areas are underserved with broadband and people sign up as soon as they can once broadband hits their area. FTR has a nice niche carved out for itself.

  • Thom

    June 16, 2010

    FTR has already declared their intention to reduce the dividend rate to 75% of its current amount, after closing the deal with Verizon. $.75/year instead of $1.00. Still a very good return (as long as the stock holds its value) but this should have been reported in this article, which sounds a lot like a sales pitch to me. I've owned FTR for about 20 months but will probably sell after the last $.25 dividend is paid.

  • sagitarius84

    June 17, 2010

    Thom,

    What do you expect from a person who doesn't own dividend stocks but writes about them simply to get traffic to their website?

    Telecom stocks are very risky, and their yields are simply unsustainable. High payout rations, high competition and the death of the landline are just a few of the problems there...

  • chuck ross bachelorboycar@yahoo.com

    January 19, 2011

    FTR,ithink line will be here for a long time!!!!!!!!!! Cell phones have their place but, not in a moving car. Laws will be written soon. May I suggest that you look into Europ countries and see what they have developed in what moves to make for the better ment of ftr And i WOULD APPREICATE YOUR REPLY cHUCK THE DIVIDEND IN FTR HAS DROPPED FROM 12 TO 7% DOES THAT MEAN ftr is going out of busines sooner than some predicted?

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