Is FTR the Britney Spears of the dividend world? Beauty Is Not Always Obvious From The Outside

By: ispeculatornew
Date posted: 08.25.2011 (5:00 am) | Write a Comment  (0 Comments)

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Every month, we publish a list of the top 100 dividend stocks and we always make sure to caution against using the list literally. Why? Because simply looking at a few numbers can lead you to big mistakes. I think every guy knows that some girls that are incredibly beautiful at first eye tend to have a lot of other downsides when you take a deeper look. It’s quite easy to walk downtown and spot a good looking girl but how do you determine if she is actually worth even getting to know? Every month, we invite all of you to sign up for our free mailing list where we look at a more in depth profile of these stocks in order to determine if they have the 20 things that we look for in dividend stocks but also if they have what it takes to be part of a sustainable dividend portfolio. Again today, I would like to invite you to join if you have not done so already:

What To Look For

That being said, the most obvious example of this fact is Frontier Communications Company (FTR) which month after month has been ranking at the very top of our top dividend stocks, with a yield that often approaches 10%. Some time ago, I wrote about FTR on the newsletter and why the stock was a poor dividend play despite its amazing dividend yield. I received a few comments regarding the fact that the company was turning it around, that its recent M&A activity would mean increased ability to pay a high dividend. The primary purpose of any good dividend portfolio is to avoid holding stocks that decline their dividend. It’s not a coincidence that many telecommunications stock like FTR have reduced their payout. Let’s look at the facts:

FTR pays a quarterly dividend of $0.1875
FTR made $0.06 per share in its most recent quarterly earnings, the same amount as the previous one

FTR is thus paying out 3 times more than it is making. While revenues are increasing rather quickly, because of its margins, earnings are not expected to climb very fast in the coming months.

How long do you think FTR will be able to keep up such payments? The company has a current ratio of 0.80 meaning it has more short term liabilities than assets.

Isn’t FTR the perfect example of a stock that looks great on the surface but with so many problems hidden underneath the surface? The Canadian stock Yellow Pages (YLO) is another great example of that and it recently announced a slash in its dividend.

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