Is This 12% Dividend Going Away?
Regional telecom Alaska Communications Systems (NAS: ALSK) looks ice-cold today. Shares took a precipitous fall overnight on the release of third-quarter results. More precisely, Alaska dropped on news that one of the sector's most stable dividends might get a haircut.
Third-quarter sales of $90.3 million were in line with analyst estimates while the $0.02 net loss per share was a serious disappointment. Forward guidance was unchanged from earlier estimates. Revenues per subscriber are on the rise, the 4G LTE network build continues as planned, and subscriber counts are pretty stable. So far, so ... well, acceptable.
But on the conference call, management dropped this bomb on investors: "Our board has been reviewing our dividend policy."
That's often code for, "We may need to slash or suspend our payouts." Since many investors are drawn to Alaska by its 12% dividend yield (as of last night; 15.5% at today's prices), that's like telling hockey fans that indoor ice rinks might get outlawed. It hurts even more when you consider Alaska's ultra-dependable payout history: The company has paid the same $0.215 quarterly divvy per share since the first quarter of 2006.
CEO Anand Vadapalli then bent over backward to remind analysts to "take one step at a time, and not get ahead of ourselves." Dividend changes may or may not be under way, but investors should know when the board is looking at a policy change.
When asked whether dividends take priority over the LTE build, Vadapalli shot it right back to the board again. Dividend policy is up to the board of directors and management must adjust business strategies to the hand they're dealt. If that means accelerating or slowing down network buildouts, or even taking on new debt just to keep both dividends and growth plans healthy, then that's another issue entirely.
Alaska Communications is certainly not the only double-digit yield payer in the telecom sector. Other American regionals such as Frontier Communications (NYS: FTR) and Otelco (NAS: OTT) have also joined the club, and CenturyLink (NYS: CTL) comes very close with an 8% yield. Looking outside our borders, you'll also find 11% yields or better from global giants France Telecom (NYS: FTE) and Telefonica (NYS: TEF) .
So if Alaska Communications' dividend well runs dry, you'll find plenty of alternative high-income plays in the same sector. But how do you pick the right stock? We've prepared a special report to help you separate the dividend wheat from the chaff. In "Secure Your Future With 11 Rock-Solid Dividend Stocks," you'll learn the principles you need in order to build a bulletproof income portfolio -- and yes, there are telecom stocks in the mix.
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At the time this article was published Fool contributor Anders Bylund owns shares of France Telecom but holds no other position in any of the companies mentioned. The Motley Fool owns shares of Telefonica. Motley Fool newsletter services have recommended buying shares of France Telecom. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinion, but we all believe that considering a diverse range of insights makes us better investors. Check out Anders' holdings and bio, or follow him on Twitter and Google+. We have a disclosure policy.
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