Windstream Stock Tumbles as Dividend Eliminated

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Broadband provider Windstream Holdings Inc. (NASDAQ: WIN) reported second-quarter results before markets opened Thursday morning. The company posted a net loss of $68.1 million and a diluted loss of $0.37 per share.

The news barely moved the stock, but shortly after the report the company released a second announcement that did move the shares. The company’s board of directors has eliminated the quarterly dividend payment of $0.15 per share, effective immediately.

At last night’s closing price of $3.72 per share, Windstream’s dividend yield was an astronomical 16%. As Stein’s Law directs, if something can’t go on forever, it won’t.

The elimination of the dividend is softened (a little) by the Windstream board announcing that it had authorized a $90 million stock repurchase plan effective through the first quarter of 2019. The board said that it will “opportunistically purchase shares through open market purchases and pay down debt.”

CEO Tony Thomas said:

Our equity is undervalued especially given our improved strategic direction with enhanced product capabilities, management talent additions and anticipated acquisition synergies of $180 million. The elimination of the dividend along with the $90 million buyback program and delevering that will also occur will create value for all our stakeholders. This is the right path for our company.

One is tempted to ask, “Right for whom?” Certainly shareholders aren’t happy — shares tumbled 9% after the announcement. But then, what else did they expect? The company has missed profit estimates by big margins in each of the past four quarters and shares have plummeted from a high of $10.45 last September to below $3.50 this morning.

Windstream really had no choice but to dump its dividend payment. The company could reduce its float by around 25 million shares (about 14%) over the term of the buyback program and maybe, just maybe, dodge another reverse split like the one-for-six transaction completed in April 2015.

But this is not a good day for Windstream. Shares traded down more than 18% in morning trading to $3.03, a new 52-week low. The 52-week high is $10.45, and the consensus price target was $5.58.