Are the Dividends for Verizon, Frontier, and Windstream Secure?

Before you go, we thought you'd like these...
Before you go close icon

It's easy to spot high-yielding investment opportunities. But it's a daunting task to find companies that can truly sustain their high yields without straining their financials; a careful analysis of their financial strength is needed.

Let's take a look at Verizon , Frontier , and Windstream - leaders in the telecom industry - and find out how secure their dividend payouts really are.

Debt load
Analyzing the debt load of a company provides vital insights about its dividend sustainability. Windstream, for instance, is heavily leveraged. The company paid out 84.5% of its operating income in the previous quarter - leaving little reserves behind - just to cover its interest expenses. When its long-term debt matures, eventually, Windstream may have to slash its dividends in order to repay its lenders. 

Most Recent Quarter



Total Debt

Operating Income

Interest Expense



$109.77 billion

$7.16 billion

$1.21 billion



$8.12 billion

$226 million

$170.96 million



$8.76 billion

$167.8 million

$141.9 million

Frontier, on the other hand, faces no such imminent threat. Its debt load is fairly limited -- the telecom company can raise and restructure its debt as per its needs. Meanwhile, the company can continue to reward its investors with sustained dividend payouts.

Among the mentioned peers, Verizon carries the largest amount of debt. In spite of that, the telecom behemoth paid out merely 16.9% of its quarterly operating income to cover its quarterly interest expenses. Its favorably structured debt suggests that Verizon won't have to compromise on its dividend payouts in order to repay its lenders. 

Payout ratio
The dividend burden on a company is another crucial determinant of its future payouts. Verizon, for example, distributed $5.98 billion in dividends and generated about $20.6 billion in free cash flow, or FCF, over the last 12 months. Its dividend cover of 3.44 times - one of the best in its industry - indicates that the telecom giant can sustain its future dividend distributions comfortably. 







Free Cash Flow Payout Ratio*






* Calculated by (TTM Total Dividends*100/TTM Free Cash Flow)

Similarly, over the last 12 months, Frontier generated about $858.1 million in free cash flow and distributed $400 million in dividends to common and preferred stockholders. Its dividend cover of 2.14 times - though, not as impressive as Verizon's - suggests that the telecom stalwart has ample dividend cushioning as well.

Windstream, however, has the least impressive payout ratio. The telecom company distributed about $595.4 million in dividends while generating $784.1 million in free cash flow over the last 12 months. Its low dividend cover of just 1.31 times suggests that a sharp downswing in Windstream's operating cash flow can deem its dividends unsustainable.

Investing in growing companies also contributes in securing and stabilizing future dividend income.


Capital Expenditure YoY Change











Data from YCharts

As illustrated in the table above, Verizon and Frontier have ramped up their investments substantially over the last year. Since Verizon has a healthy trailing 12-month return on investment, or ROI, investors can expect its investments to yield handsome returns over the coming years.

Considering that Frontier sports a relatively lower ROI, its growth rate may not necessarily match Verizon's. But Windstream, with its substantial cuts in capital expenditures, may find it hard to grow its top line over the coming years.

Foolish final thoughts
Clearly, Verizon and Frontier appear to be in a financially sound position. They have ample dividend cushioning to reward their investors with generous dividend hikes over the coming years. Investors, therefore, might want to avoid Windstream and consider holding both Verizon and Frontier to hedge their risks and diversify their rewards.

Looking for a great dividend stock? Here are our top picks for the next decade
The smartest investors know that dividend stocks simply crush their non-dividend paying counterparts over the long term. That's beyond dispute. They also know that a well-constructed dividend portfolio creates wealth steadily, while still allowing you to sleep like a baby. Knowing how valuable such a portfolio might be, our top analysts put together a report on a group of high-yielding stocks that should be in any income investor's portfolio. To see our free report on these stocks, just click here now.

The article Are the Dividends for Verizon, Frontier, and Windstream Secure? originally appeared on

Piyush Arora has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Copyright © 1995 - 2014 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

Read Full Story

Sign up for Finance Report by AOL and get everything from business news to personal finance tips delivered directly to your inbox daily!

Subscribe to our other newsletters

Emails may offer personalized content or ads. Learn more. You may unsubscribe any time.

People are Reading