Consolidated Communications Holdings Inc: A 13.4% Yield That Remains Safe
This 13.4% Yield Looks Interesting
Generally, big-yield names come with big risk. Double-digit payouts run on borrowed time. And any time you see an tall yield, the name comes with higher risk.
Not so with Consolidated Communications Holdings Inc (NASDAQ:CNSL). The stock sports a 13.4% payout, which means the business sits at the upper end of the risk spectrum. But for such a high-yielding name, the dividend looks remarkably solid.
The telecom company provides phone, Internet, and television to 1.5 million customers across the country. This tends to resemble a slow, reliable business. Even during a recession, consumers never abandon their Internet or mobile phone subscriptions.
This has created a reliable income stream for owners. Consolidated Communications has paid a dividend to shareholders since 2006, even through the financial crisis. And last quarter, management declared their 50th consecutive quarterly dividend. (Source: “Consolidated Communications Reports Third Quarter 2017 Results,” Consolidated Communications Holdings Inc, November 2, 2017.)
That payout looks secure for now. Through the first nine months of 2017, this business generated $97.2 million in cash available to pay dividends. Over the same period, management paid out about $66.7 million in dividends. This comes out to a payout ratio of 68%. This figure sits well within my comfort zone, as it leaves the company with a big buffer if income drops. Even if cash flow fell by a third, it could still be able to cover the dividend.
That said, the Consolidated story comes with some blemishes. Last year, executives completed a $1.3 billion acquisition of FairPoint Communications Inc. The deal will pad cash flow, add more than 36,000 route miles of fiber network, and achieve $55.0 million in annual coat savings. (Source: “Consolidated Communications closes on $1.3B FairPoint buyout,” Seeking Alpha, July 3, 2017.)
Management funded most of this deal, however, with debt. Any time you saddle your balance sheet with too many liabilities, things can go wrong fast. Debt cuts into your wiggle room and gives the business less ability to maneuver.
In the case of Consolidated Communications Holdings Inc, it’s not tough to imagine what could go wrong here. A small bump in interest rates could eat into the business’s profits. If revenues disappoint (cord cutting, anyone?) or management can’t achieve the promised cash savings, this debt load could put the dividend at risk.
Shareholders will need to watch the financial results quarter to quarter. And of course, nobody will call Communications Holdings Inc’s distribution a sure thing. But with a yield approaching 13.4%, investors are being well compensated for the risk they’re taking.
Dear Reader: There is no magic formula to getting rich. Success in investment vehicles with the best prospects for price appreciation can only be achieved through proper and rigorous research and analysis. We are 100% independent in that we are not affiliated with any bank or brokerage house. Information contained herein, while believed to be correct, is not guaranteed as accurate. Warning: Investing often involves high risks and you can lose a lot of money. Please do not invest with money you cannot afford to lose. The opinions in this content are just that, opinions of the authors. We are a publishing company and the opinions, comments, stories, reports, advertisements and articles we publish are for informational and educational purposes only; nothing herein should be considered personalized investment advice. Before you make any investment, check with your investment professional (advisor). We urge our readers to review the financial statements and prospectus of any company they are interested in. We are not responsible for any damages or losses arising from the use of any information herein. Past performance is not a guarantee of future results. All registered trademarks are the property of their respective owners
Sign up to receive our FREE Income Investors newsletter along with our special offers and get our FREE report:
5 Dividend Stocks to Own Forever
This is an entirely free service. No credit card required. You can opt-out at anytime.
We hate spam as much as you do.