I have been watching Windstream (WIN) for many years due to its very stable and high dividend yield. Founded in 1940s, WIN had been largely focused on the business in providing phone, web and related services to the rural areas in the US. Since not many companies were interested in such businesses, WIN was doing fine without much competition and earned a lot of money. That’s why it could afford to pay back shareholders with quite a high dividend at around 5-10% depending on the stock price. Believe or not, WIN is a Fortune 500 company.
What becomes more interesting now is its strategic transformation under the current management team: They don’t want their business to be limited to the rural areas anymore. They have expanded to the top metropolitan areas in the US as well and more importantly, they have expanded their business to much hot high-tech areas such as data, voice, network, and cloud-based solutions. They have started the transition since 2006 and have become quite successful based on their profits and cash flow. But the Wall Street is still very much underestimating this company based on how low its share price is at the moment. At the current price around $9, WIN is paying you a 11% dividend, which is less than 70% of its free cash flow. This low percentage suggests there is not much risk that WIN will need to cut its dividend even if it faces some challenges down the road. Generally speaking you don’t want to touch stocks with very high dividends as there are usually high risks involved. But this is not the case for WIN. I even believe, when the Street wakes up some day, WIN’s stock price will shoot up substantially from this level. This is a rare combo that you can safely enjoy the high dividend income but also get potential big capital gain. You don't often find this kind of mix for a good stock. I’d buy WIN now and add more if it goes down further due to overall market weakness.
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