Qwest's New Dividend Above Bells (Q, T, VZ)

Qwest Communications (NYSE: Q) is seeing shares surge in after-hours trading.  The telecom provider has announced that its board of directors has declared a quarterly dividend.  The dividend is being set at $0.08 per share, and based on a $6.96 close it would be a yield of 4.5% annually.

But here is the important issue.  The board of directors expects to pay a quarterly dividend going forward.  It hasn’t issued a dividend since 2001.  The company also said it expects to complete 70% of its $2 Billion share repurchase plan by the end of 2007.

The company is hosting an analyst call this coming Monday.  If you think dividends don’t matter anymore, guess again.  Shares are up 7% at $7.50 in after-hours trading.  There are many mutual funds that have not been able to invest in Qwest (hey, that rhymes) because it has not been a dividend payer like the rest of the Bells.  ON a trailing basis, AT&T (NYSE:T) Yields roughly 4.1% on its dividend and Verizon (NYSE:VZ) pays roughly a 3.9% yield.

So if you take the after-hours pop to $7.50 into consideration, you still have about a 4.25% yield.  While Qwest did not specifically state that it was going to KEEP PAYING $0.08, the press release says, "It is the expectation of the board of directors to pay a quarterly dividend going forward."  If companies issue a dividend they rarely cut it when it is new.  Otherwise this would be a special dividend.

It sounds like a certain Denver-based telecom just opened itself to start being owned by many more fund managers.

Qwest is regularly screened for our "10 Stocks Under $10" weekly newsletter.

Jon C. Ogg
December 13, 2007

Jon Ogg can be reached at [email protected]; he does not own securities in the companies he covers.