I know it's tempting... But sometimes, as an income investor,
when you see a stock yielding 8%, 10%, 11% or even more -- it pays
to hold off on pulling the trigger with that buy order.
The good news is that sometimes all it takes is a little
homework, including an understanding of the risk involved and a
proper expectation of performance. If it still looks appealing,
then by all means, make the purchase.
I recently ran into this situation when asked about a former
holding in my
It's understandable. In fact, I imagine this stock has shown up
in a lot of investors' screens for high-yielders or losing stocks
that might now be bargains. So I thought it would be worthwhile to
tell you about the stock and why it might be worth considering for
The stock is
Frontier Communications (Nasdaq:
, a rural telecom that has about 15,400 employees and provides
telephone, broadband, satellite TV and wireless Internet services
to households and businesses in small to mid-sized markets in 27
It is currently the fourth highest yielding stock in the S&P
As readers of my
newsletter know, I removed Frontier from my portfolio in February.
At that time, it was the highest yielding company in the S&P
But, it recently cut its quarterlydividend has been cut nearly
in half, to $0.10 per share from $0.188. Still, theshares offer a
temptingyield close to 8.5% at this dividend rate.
So is Frontier a steal at today's price? My reflex response is
"never catch afalling knife ," meaning the shares could go lower
yet. That said, in June the shares fell to about $3.50 but have
since rallied back to the upper $4.50 range, a 28% gain in just a
When the shares tanked, insiders started buying, which can be a
sign of good things to come. All together, they picked up about
40,300 shares at average prices of $3.28 to $3.34 apiece.
The company is profitable, too. First-quarterearnings totaled
$32.2 million, or $0.03 per share. While in the second quarter the
company earned $17.9 million, or $0.02 per share.
Risks to Consider:
That's not to say all is well with this telecom. Revenues are
declining as the loss of landline customers is not being offset by
growth in broadband Internet and TV. Management also has an
atrocious dividend record. The dividend was cut twice in the last
two years, and the latest cut came about a year after management
assured shareholders there was enoughfree cash flow to maintain the
dividend at the then-current rate.
Action to Take -->
Frontier is not for the faint-hearted. If you're looking for a
reliable dividend grower with steadycash flow , one of my other
portfolio holdings is probably a better bet.
-- Carla Pasternak
[Note: Sometimes chasing the highest yielders can be devastating
to your portfolio. Instead, you should own what I call "Retirement
Saving Stocks." These pay dividend yields of 7.5%... 8.8%... even
14%. For more details on these investments, and to learn how to get
a report about my 10 favorite income stocks to own today, click
Carla Pasternak does not personally hold positions in any
securities mentioned in this article. StreetAuthority LLC does not
hold positions in any securities mentioned in this article.
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