Frontier Communications: No Dividend Needed

The recent rally in Frontier Communications (FTR) proves that the market pays entirely too much attention to dividends. The communications stock remains incredibly risky, but is a better bet now without the dividend payouts and a still beaten down stock price.
Source: Frontier Comm. Q1'18 presentation
Dividend Cuts The problem with the current market is that the structure doesn't allow companies flexibility around dividend decisions. Lots of investors like the consistency of dividend payouts, but the flip side is the negativity attached to the companies that alter the capital return plan via payout cuts or a focus shift to more flexible stock buybacks.
Frontier was the prime example of a stock absolutely crushed due to dividend cuts the last few years. The telecom company went from paying $1.575 quarterly in 2017 (adjusted for the 1-for-15 reverse split) to eliminating the dividend at the start of 2018.
FTR data by YChartsThe stock was absolutely crushed in the process because the market places entirely too much emphasis on dividends instead of the underlying business. Frontier isn't a great company in a difficult telecom sector where customers are cutting legacy wireline services, but the financial picture didn't deteriorate at the level of the stock price over the last three years.
The stock price is now rallying as the market comes to terms with a stable financial picture without the weight of paying a large dividend when the company... Read more

Older articles featuring FTR: