Too Much Debt
Windstream Holdings’ (WIN) net debt sat at $8.9 billion as of the end of June. That’s more than nine times shareholder equity. See, right there I’d be on to the next stock.
Cloud computing is a big deal these days, so I get the sexiness of its business — but when interest eats up almost 75% of its operating income, you have to at least second-guess its long-term viability, let alone keeping the dividend at 25 cents per quarter.
WIN’s free cash flow for the trailing 12 months is approximately 99 cents a share, while it pays out $1 in dividends. That’s right — it’s currently paying out 100% of its free cash flow in the form of dividends, leaving nothing for debt repayment, acquisitions, working capital or its $400 million underfunded pension. Eventually this will come back to haunt it. (By comparison, Frontier Communications (FTR) pays out 53% of its free cash flow annually, leaving it with almost $400 million for other things.)
Windstream’s 11.7% yield is a ticking time bomb for retirement investors.