WINDSTREAM HOLDINGS INC. $10(Nasdaq symbol WIN; Income Portfolio, Utilities sector; Shares outstanding: 602.8 million; Market cap: $6.0 billion; Price-to-sales ratio: 1.0; Dividend yield: 10.0%; TSINetwork Rating: Average; www.windstream.com) gets 73% of its revenue by selling high-speed Internet and other communication services to 357,700 businesses.
The other 27% comes from selling phone, Internet and video services to 3.2 million residential customers, mainly in the rural U.S.
In July 2014, the company announced that it would transfer its fibre optic and copper networks, some land and buildings to a new real estate investment trust (REIT). Windstream will then lease these assets from the REIT for at least the next 15 years at $650.0 million annually.
Windstream will hand out the new REIT’s units to its own shareholders as a tax-deferred dividend in the first quarter of 2015.
Meanwhile, the company’s revenue fell 2.9% in the three months ended September 30, 2014, to $1.46 billion from $1.50 billion a year earlier. That’s mainly because businesses are using fewer voice and long distance services.
Earnings fell 73.9%, to $8.0 million, or $0.01 a share, from $30.6 million, or $0.05.
Studies show that after an initial adjustment period of a few months, spinoffs tend to outperform groups of comparable stocks for several years. The spinoff should also let Windstream cut $3.2 billion from its $8.6-billion long-term debt, which is a high 1.4 times its market cap. That would give it more room to improve its networks. Even so, its business-telecom division faces rising competition from larger providers.
The current annual dividend of $1.00 a share yields a high 10.0%. After the spinoff, the two companies will pay a combined dividend of $0.70 ($0.60 from the REIT and $0.10 from Windstream), which would yield 7.0%, based on the current stock price.
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