Frontier Communications' 17.5% Yield: Too Good To Be True?

A stock screen for high yield stocks will show Frontier Communications (FTR) at the top of the list. At the current time, this stock sports a 17.5% annual yield. This reported yield is not due to a one-time or variable payout. The Frontier Communications management has committed to paying the 75 cents annual payout. Outside of the mortgage REIT sector, there are very few stocks sporting a double-digit yield. A year ago, shares of FTR were worth twice as much, making the dividend yield half as high. What should income investors read into the falling share price?

A little history

Frontier provides telecommunications services such as telephone, high speed Internet and digital/satellite TV services in about half the states, primarily to small communities and rural areas. In May 2009, Frontier Communications reached an agreement to purchase the rural communications services and assets belonging to Verizon Communications (VZ) in 14 states. The deal was valued at $8.6 billion and carried out in 2010. The press release noted the combined assets would have produced pro forma revenue of $6.5 billion and EBITDA of $3.1 billion, based on 2008 closing numbers. The deal was financed primarily by stock issuance and the number of FTR shares outstanding is currently double the number reported in 2009. The synergistic savings of merging the two asset bases was projected to be $600 million. The structure of the deal meant that Verizon shareholders were to end up with two-thirds of the new, much larger Frontier Communications.To continue reading, click here.

Source: http://stockcroc.com/2012/02/03/frontier-communications-17-5-yield-too-good-to-be-true/?utm_source=rss&utm_medium=rss&utm_campaign=frontier-communications-17-5-yield-too-good-to-be-true

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