Frontier Communications shares continued to decline for a second day after a Goldman Sachs analyst cut his rating on the stock to “sell” on fears the telecom and cable company might have to drastically pare its dividend.
Goldman Sachs analyst Brett Feldman lowered his rating on Frontier to sell on Wednesday, adding in a research note that he believed the company would have to suspend its dividend after the first quarter to help it meet what he called “significant debt maturities” in 2020 and 2022.
Frontier stock fell 10.6% (25 cents each) to $2.11 per share on Wednesday after the Goldman report. On Thursday, the stock continued to sag, dropping 8% (17 cents each) to $1.95 per share, an all-time low.
It’s been a rough past 12 months for Frontier, which paid about $10.5 billion for Verizon Communications’ Fios properties in California, Texas and Florida last year. The stock has fallen from about $5 per share one year ago.
Frontier said back in February that its board had declared a quarterly cash dividend of 10.5 cents per share payable on March 31 to shareholders of record as of March 15. Some analysts have cautioned that although Frontier has sufficient free cash flow to cover the dividend – free cash flow was $921 million in 2016 vs. a dividend payout of $475 million – as the stick price dips it could be harder to cover.
At $1.95 per share, the dividend yield is 22%, a high rate that usually denotes a price cut is in the cards.
According to reports, the Frontier downgrade is just the latest in what has been a string of bad news for the company. It's planning, at its May annual meeting, to seek shareholder approval for a possible reverse stock split. The Connecticut-based telco also was replacee in the S&P 500 Index by Raymond James Associates, after Frontier could not meet the popular index’s market cap requirements.
