It May Be New Frontier for Frontier Communications' (FTR) Dividend...
Up)
Although Frontier Communications (NYSE: FTR) fourth-quarter earnings release is just a few days away, there's probably only one thing on investor's minds... the dividend.
Paying out $0.75 annually on a $4 stock looks like a juicy gift for any income-hungry investor, but any time a yield gets that high -- 18.4 percent in the case of Frontier -- red flags should be raised. As is the case with Frontier.
With investments and prospects dwindling, investors know it is just a matter of time before the hefty dividend is cut; hence the drop in the stock price and the resulting increased yield.
Recently analysts at Goldman Sachs weighed in on the matter, saying they see an increasing chance of a dividend cut. The dividend cut could come as soon as the fourth-quarter results, the analysts said.
Cutting the dividend will be a "prudent" step, Goldman believes. The firm said a 65 percent cut would be appropriate to achieve a 2.5x leverage target with a sustainable dividend payout ratio.
A 65 percent dividend cut would bring the annual dividend down to $0.2625, or a more modest 6.4 percent yield.
Goldman doesn't see too much more downside even if the company's Board cuts the dividend. If Frontier cuts the dividend 65 percent, shares would likely find support in the $3.50-$3.75 range, according to the firm.
Frontier Communications reports its fourth-quarter results on Thursday, February 16, 2012 after the market closes. Will the Board cut the dividend now to a more sustainable level and have an opportunity to use the extra funds to grow? Or will they cut it later -- maybe when it's too late?
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Paying out $0.75 annually on a $4 stock looks like a juicy gift for any income-hungry investor, but any time a yield gets that high -- 18.4 percent in the case of Frontier -- red flags should be raised. As is the case with Frontier.
With investments and prospects dwindling, investors know it is just a matter of time before the hefty dividend is cut; hence the drop in the stock price and the resulting increased yield.
Recently analysts at Goldman Sachs weighed in on the matter, saying they see an increasing chance of a dividend cut. The dividend cut could come as soon as the fourth-quarter results, the analysts said.
Cutting the dividend will be a "prudent" step, Goldman believes. The firm said a 65 percent cut would be appropriate to achieve a 2.5x leverage target with a sustainable dividend payout ratio.
A 65 percent dividend cut would bring the annual dividend down to $0.2625, or a more modest 6.4 percent yield.
Goldman doesn't see too much more downside even if the company's Board cuts the dividend. If Frontier cuts the dividend 65 percent, shares would likely find support in the $3.50-$3.75 range, according to the firm.
Frontier Communications reports its fourth-quarter results on Thursday, February 16, 2012 after the market closes. Will the Board cut the dividend now to a more sustainable level and have an opportunity to use the extra funds to grow? Or will they cut it later -- maybe when it's too late?
Get immediate access to market moving news and alerts with StreetInsider.com Premium - FREE TRIAL!
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