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Shares of Windstream (WIN)
Provide Stable Income for Conservative Investors |
Published:
October 18,
2007
Windstream (NYSE: WIN, $13.95) debuted in July 2006 when
wireless service provider Alltel (NYSE: AT) spun off its
traditional phone-line business and combined those assets with
privately owned Valor Communications.
A member of the prestigious S&P 500 Index, Windstream is
currently the largest telecommunications company in the United
States focused on rural customers. The firm operates in 16
states, focusing mainly on deep southern states such as Alabama
and Georgia, but also operates as far west as New Mexico and as
far north as New York.
The company provides a variety of telecom services, including
local, long-distance, and broadband high-speed Internet.
Revenues in 2007 are expected to be north of $3 billion.
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For the past four quarters, WIN has paid a steady dividend of
$0.25 per share, providing shareholders with a yield of 7.2%.
With total annual payouts of approximately $477 million and free
cash flow of nearly $718 million, the company pays out about 67%
of free cash flow. As such, we consider the dividend highly
sustainable over the long-term.
WIN focuses on rural markets where competition for telephone
customers from cable companies and other telecoms is far less
intense than in the big cities. Rural phone companies are
traditionally cash cows with strong operating margins -- and WIN
is no exception.
The company is projected to earn $0.90 a share in 2007 -- a
total forecast to grow slightly to $0.94 in 2008. With highly
predictable earnings and dividend payouts, WIN's share price
typically fluctuates in a narrow range. Over the past 12 months,
the stock has hovered between $12.46 and $15.63.
Potential risks include competition from cable and wireless
providers. When urban areas are saturated, cable companies are
likely to push harder into rural areas to gain telephone
customers. At the same time, wireless service has and will
continue to reduce the demand for fixed or land lines. Already,
the company is losing nearly 5% of these phone customers yearly,
although so far those losses have been replaced with increased
Internet revenues.
Furthermore, the company has a relatively solid balance sheet,
which should enable it to continue gaining market share through
acquisitions. And Windstream has done just that, as shown by the
recent purchase of CT Communications -- an all-cash deal valued
at $585 million that will hand the company another 30,000
broadband Internet subscribers. Future acquisitions should help
offset declines in the traditional phone line business, enabling
WIN to maintain its generous dividend payments.
Action To Take ---> WIN is
an appropriate stock for those investors who seek a stable
income stream, but are not necessarily hunting for capital
gains. If you are one of them, then WIN should be a winner.
Carla Pasternak
Editor
High-Yield Investing
http://www.StreetAuthority.com
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Carla
Pasternak draws on a variety of financial backgrounds to make profitable
calls on income-generating stocks for her readers.
Carla has
been employed in the investment industry for more than two decades. In
addition to her work as a writer for several other nationally recognized
financial publishers, her previous experience includes a position as
President of a well-respected investor relations firm. She has also been
writing shareholder reports for public companies (annual reports,
speeches, corporate profiles, slide shows, etc.) since 1980.
A highly
successful investment analyst, Carla specializes in high-yield,
income-paying stocks. In that pursuit, she's always mindful to select
companies that not only pay rich dividends, but that also have the
potential to deliver strong long-term capital gains.
On the
educational front, Carla holds both MBA and Ph.D. degrees. When she's
not watching the market, she's teaching business courses at the college
level and managing several million dollars in portfolio assets.
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