Frontier Communications (FTR) Should Cut its Dividend - Goldman Sachs
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Price: $0.26 --0%
Rating Summary:
6 Buy, 11 Hold, 8 Sell
Rating Trend: = Flat
Today's Overall Ratings:
Up: 8 | Down: 5 | New: 26
Rating Summary:
6 Buy, 11 Hold, 8 Sell
Rating Trend: = Flat
Today's Overall Ratings:
Up: 8 | Down: 5 | New: 26
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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.
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.
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