Frontier Communications (FTR) Should Cut its Dividend - Goldman Sachs
FTR Hot Sheet
Rating Summary:8 Buy, 7 Hold, 0 Sell
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Goldman Sachs commented on Frontier Communications (NASDAQ: FTR) related to the immense pressure amid accelerating investor concern over the sustainability of the $0.75/share annual dividend which yields 17.5%.
The firm now believes there is an increasing chance of a dividend cut.
"While we previously believed the company was unlikely to cut the dividend, we now see an equal probability that FTR cuts the dividend together with 4Q11 earnings," the firm said. "In our view, the company may be best served reducing its dividend to improve its balance sheet and provide a clearer path for investment."
The firm said management could reaffirm its dividend given expectations for an improving revenue profile, synergy realization in 2H12 and lower capital intensity in 2013. However, Goldman sees little opportunity for investment in this scenario.
"We believe the prudent approach would be to cut the dividend," the firm said. A cut of 65% would be appropriate to achieve a 2.5x leverage target with a sustainable dividend payout ratio.
If Frontier follows through with a dividend cut, shares could fall further but will likely find support in the $3.50-$3.75 range (7.0%-7.5% yield).
For an analyst ratings summary and ratings history on Frontier Communications click here. For more ratings news on Frontier Communications click here.
Shares of Frontier Communications closed at $4.24 yesterday, with a 52 week range of $3.81-$9.55.
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The firm now believes there is an increasing chance of a dividend cut.
"While we previously believed the company was unlikely to cut the dividend, we now see an equal probability that FTR cuts the dividend together with 4Q11 earnings," the firm said. "In our view, the company may be best served reducing its dividend to improve its balance sheet and provide a clearer path for investment."
The firm said management could reaffirm its dividend given expectations for an improving revenue profile, synergy realization in 2H12 and lower capital intensity in 2013. However, Goldman sees little opportunity for investment in this scenario.
"We believe the prudent approach would be to cut the dividend," the firm said. A cut of 65% would be appropriate to achieve a 2.5x leverage target with a sustainable dividend payout ratio.
If Frontier follows through with a dividend cut, shares could fall further but will likely find support in the $3.50-$3.75 range (7.0%-7.5% yield).
For an analyst ratings summary and ratings history on Frontier Communications click here. For more ratings news on Frontier Communications click here.
Shares of Frontier Communications closed at $4.24 yesterday, with a 52 week range of $3.81-$9.55.
Discover Wall Street's best ratings calls with the pros - Ratings Insider Elite. Free Trial!
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Easy for Goldman Sachs to Say, but...
Alvin on Feb 2, 2012 10:31 AMMark as Spam
Some of us really depend on that dividend. My wife and I are both retired and too old to work anymore, and this dividend is an important part of our incomes now. Please Frontier management ignore the "armchair" analysts.