2/23/2010- Morgan Stanley analysts believe that Frontier Communications (NYSE:FTR) will emerge a stronger company after it closes the Verizon (NYSE:VZ) deal and that despite concerns, integration risks are not as high as some fear.
Analysts Simon Flannery and Daniel Gaviria said, "The potential cost synergies should help improve the company's profitability and FCF generation; the low broadband penetration at SpinCo (62.5%) could provide some revenue upside too. The stock will likely be capped near term, given potential flow back from Verizon shareholders. Frontier has one regular $0.25 dividend payment prior to cutting the dividend by 25% at closing (by the end of 2Q10). The stock has a 12.9% dividend yield, or 9.7% post closing, either way the highest in the S&P 500."
Morgan Stanley maintains an "equal weight" rating on the stock. The bank sees fiscal 2009 EPS of 58 cents, vs. the consensus estimates of 53 cents per share, and fiscal 2010 EPS of 72 cents, vs. the consensus estimates of 59 cents per share.
FTR stated last year that the dividend would be cut from $1/share to $0.75/share annually after the VZ acquisition goes through, so it does not come as any surprise. This is a prudent move, as the monies will be used for capex upgrades to the newly acquired properties/lines. Even after the dividend cut, FTR will still be one of the highest yielding stocks on the S&P, if not the highest.
Enjoyed your post. How can any company pay out more in dividends than they take in in net earnings? Looks like $.58 income per share in 2009 and $1.00 in dividends The 4th Q. looked even worse. If they don't cut dividends this cmpany isn't long for it IMO. Am I mising something here? Curious Catnip
From the 2/24 Conf. Call. 'Dividend payment for the fourth quarter and full year 2009 equates to a payout of 63% and 64% of free cash flow, respectively. The company recently declared a first-quarter 2010 dividend of 25 cents per share payable on March 31, 2010. Frontier remains committed to its aggressive dividend policy as the company targets to offer 60-70% return to its shareholders in the form of dividend based on healthy free cash flow expectations.'
The two companies have reached a definitive agreement that Frontier Communications Corporation will acquire approximately 4.8m access lines from Verizon in an all stock transaction for approximately USD 8.6bn.
Frontier Communications also announced a new dividend policy that takes effect after the close of the transaction, in which the company will pay an annual dividend of USD 0.75 per share to its shareholders.