Windstream Holdings Inc. (NASDAQ: WIN) is one company that many traditional investors for years have had a very time understanding its extremely high dividend rates. After all, a dividend yield of almost 9% isn’t the norm. So when we see the announcement that Windstream is merging with rival EarthLink Holdings Corp. (NASDAQ: ELNK), which has less than 4% yield, we want to see if the Windstream dividend is safe.

Windstream reported a loss that was wider than expected, but the company also has declared its same quarterly dividend of 15 cents per share. The company t also affirmed its previously provided guidance for adjusted service revenue, adjusted OIBDAR and adjusted capital expenditures. And it appears that the current dividend rate will be kept.

The company expects total service revenue of $5.275 billion to $5.425 billion and adjusted OIBDAR of $1.90 billion to $1.95 billion. Adjusted capital expenditures are expected to be between $800 million and $850 million.

One top issue here that will be the focused for investors and merger votes is how much this will reduce the costs of serving customers. The companies claim that the combination will create a net present value of approximately $900 million from synergies, plus tax benefits — or more than $4.70 per Windstream share and $3.85 per EarthLink share.

Then there is the dividend. According to the official press release regarding this merger, the combined company will have an enhanced balance sheet with higher free cash flow. That ties into the dividend as follows:

Including run-rate synergies, on a pro forma basis for the 12 months ended Sept. 30, 2016, the combined company would have a net leverage ratio of 3.2x. Further, the transaction will be significantly accretive to Windstream’s adjusted free cash flow allowing greater financial flexibility for strategic network investments and debt reduction while increasing dividend coverage.

Wells Fargo cited numerous synergies, despite just having a Market Perform rating on Windstream. It wrote on Friday:

We believed there were solid synergy opportunities on both the opex and capex side. We look for more color on the call, believe the networks are complementary to each other, as both have strong presence in the South East, South and parts of the Midwest, and think Earthlink’s fiber assets might play a role in an additional agreement with Communications Sales & Leasing.

Merrill Lynch’s David Barden was far more positive on the merger. This firm has a Buy rating and a $16 price objective that is based on 5.1 times its expected 2016 EBITDA multiple. Merrill Lynch believes that the dividend is not only safe but that the yield relative to peers makes the combined company that much more attractive. The firm’s flash note said:

We maintain our Buy rating, as we believe the dividend is secure and the current 8.3% yield is too high for the risk proposition the company presents.

Under the terms of the agreement, EarthLink shareholders will receive 0.818 shares of Windstream common stock for each EarthLink share owned. Windstream said that it expects to issue approximately 93 million shares of stock, valued at approximately $673 million.

As far as how this deal is being treated, Windstream shares were last seen up 1.7% at $7.37 and EarthLink shares were down 7.4% at $5.76. That initial reaction may look bad, but EarthLink was a $5.40 stock just last week ,and it is has a 52-week range of $4.97 to $9.86 with a consensus analyst price target up at $8.50. Windstream’s 52-week range is $4.75 to $10.46, and the consensus analyst target is $8.90.

Now let’s keep in mind that the consensus estimates for earnings per share are losses ahead. Thomson Reuters has the consensus estimate at −$0.47 per share in the current quarter and −$0.54 next quarter. The group also expects a loss in 2016 and 2017.

The discrepancy between the dividend payout and the losses is perhaps one of the reasons why Windstream has such a large short interest. As of October 14 it was 21.36 million shares, the largest short interest since mid-July. Nasdaq data shows that it was also about 13.1 days to cover.

Thomson Reuters has a consensus estimate for the Windstream dividend to be static, even out to 2018 and 2019, at $0.60 per share per year. Thomson Reuters also showed that the consensus $0.20 per share will remain its annual payout through 2019 as well.

Anyhow, it appears that the super-high dividend is safe for now. That is what the company and analysts are telegraphing.

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