Frontier Communications (FTR)
However, unlike bigger telecoms like AT&T (T) and Verizon (VZ), Frontier certainly isn’t as ballyhooed — partially because of its mostly land-based service, and also because it deals in more rural and otherwise sparsely populated areas.
It’s also a pretty risky play.
FTR, which operates in 28 states, hit the big time when it purchased almost 5 million landlines from Verizon (VZ) back in 2009 in a deal worth $8.6 billion. The acquisition resulted in a 150% increase in revenues over the next three years. However, FTR stock has never reflected this. In fact, thanks also to issuing more and more equity to make acquisitions, the stock has actually fallen — as has its dividend, from 25 cents per share quarterly in 2010 to a dime currently. Meanwhile, Frontier sits on $8.15 billion in debt, which is gigantic, and only about $650 million in cash.
However, telecom companies often carry large amounts of debt (AT&T has $76 billion vs. $1.4 billion in cash), and that’s because their cash flow is so robust. Indeed, cash flow is so strong, FTR stock can afford to yield a whopping 8.4%.
Plus, Frontier is just on the heels of another big deal late last year in which it acquired AT&T’s wireline business and fiber network in Connecticut. This deal includes AT&T’s U-verse video and satellite customers.
This and Frontier’s other moves have analysts expecting revenues and earnings to at least stabilize in fiscal 2014, and with a big dividend stock like FTR, all you really need is for things to stay level while you collect your monthly paycheck.
As of this writing, Lawrence Meyers did not hold a position in any of the aforementioned securities. He is president of PDL Broker, Inc., which brokers financing, strategic investments and distressed asset purchases between private equity firms and businesses. He also has written two books and blogs about public policy, journalistic integrity, popular culture, and world affairs. Contact him at firstname.lastname@example.org and follow his tweets @ichabodscranium.