FTR...stock purchase suggestion.

Frontier Communications, symbol FTR, has been beaten down in price the last few months.  Most stocks that have yields like FTR are considered nothing more than stocks on watch to lower dividends and another price hit downward. FTR is currently yielding just under 14%.  I currently own this security and will sell it out of my hedge fund by year end to take the capital loss. But my selling is not saying the stock is worthless nor that it will lower it's dividend. My selling is due to the fact the stock as a derivative no longer performs like I need for my purposes.

 

Most traders and investors believe FTR will lower it's payout sooner rather than later, but I would not be too quick to think that is a given. One reason it is down so much is price is the short sellers have been brutal on the stock, many long term investors have not sold. FTR currently has a 63% payout from the EBITDA and even though that is high it is nowhere near the point where it has to cut the dividend. FTR operates in the world of rural telecom companies where the big boys have no desire to do business. FTR has even bought up more of the wire line business from several wireless operators the latest one being Verizon just a few years ago. Wire line is not a growing business, it might even be a dying business. But in rural US areas it is the ONLY way you can get a telephone service or broadband Internet. It is one of only two ways you can get cable tv, the other being satellite. TV and Internet service is where FTR is growing as it is selling a good bit of new business particularly in Internet service. The race here is to offset losses in telecom wire line with increases in Internet. The pace is slow and as landline customers who tend to be older in age die they lose more of the old wire lines, but younger folks in the same areas are adding Internet and TV. That pace of loss is slow enough that FTR is able to continue paying a nice dividend, pay off the high debt load, and still do a nice business.

 

Now I would not come right out and recommend FTR for purchase, but if you are a risk taker this security might be worth a small percentage of your portfolio. I seriously doubt the stock will cut the dividend and once this becomes clearer there is likely some upside in the stock up to $8 or $9.  That would be a nice bump since you can buy a good number of shares at the current $5.56 price. It also might take awhile for the rebound, but you get paid nicely to wait at 14%. Even if they cut the dividend say to 50 cents form 75 cents annually it will still be earning right at 10% and the stock could move up as a relief rally commences. I can not see if going down much more.

 

Heck I might even have talked myself into buying it again after my wash sale rule expires. This stock is ripe for a long term put sale as well.