Tags: Windstream | high-yield | growth | WIN

High-yield Windstream On Growth Path

By    |   Monday, 28 Nov 2011 02:04 PM

Telecom provider Windstream (WIN) is often near the top of the list of high-yield S&P 500 stocks. Now the company has chosen a growth path to increase future revenues and profits. Investors should take a close look to see if the acquisitions will provide the expected results.

Windstream provide high-speed Internet, telephone and digital television services to rural customers in 29 states, primarily in the eastern half of the U.S. The company currently generates about 50 percent of revenues from business services. Broadband services are currently 12 percent of revenues and the two segments together – business and broadband – are the high-profit sectors of Windstream's business. Four years ago, these products accounted for less than 40 percent of revenues.

In August, 2011 Windstream announced it will acquire PAETEC Holding Corp. (PAET) for approximately $900 million in stock and the assumption of $1.4 billion of debt. The acquisition will increase Windstream’s annual revenue by 50 percent.

Claimed benefits of the deal include $100 million in operating expense savings and $250 million in operating loss tax benefits. The resulting company will have more than 100,000 miles of fiber optic routes serving business customers in 46 states. Business and broadband sales are expected to be 70 percent of revenues after the deal goes through near the end of 2011.

Dividend sustainability

Windstream management has stated that the company will maintain the 25 cent quarterly dividend through and after the PAETEC purchase. Investors who compare the company's net income to the dividend rate will see the dividend is significantly higher than the reported net income per share each quarter.

However, the company books enough depreciation and amortization expense (three times the net income in the 2011 third quarter) to provide enough cash flow to cover the distributions. With a current dividend yield of 8.5 percent, Windstream’s valuation is in the area where investors must make sure the company has enough cash flow to maintain the payout rate.

Recent analyst comments on Windstream include a reiteration of neutral ratings from both Gabelli & Company and UBS. At Citigroup, analysts recently reiterated their buy rating.

The company next reports on Feb. 21.

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Telecom provider Windstream (WIN) is often near the top of the list of high-yield S P 500 stocks. Now the company has chosen a growth path to increase future revenues and profits. Investors should take a close look to see if the acquisitions will provide the expected...
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Monday, 28 Nov 2011 02:04 PM
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