StockCall Scrutiny on Frontier Communications and CenturyLink: Are These High Dividends Sustainable?

Jan 22, 2013, 08:00 ET from

LONDON, January 22, 2013 /PRNewswire/ --

The domestic telecommunication sector is regaining its vitality. While the global players are looking to consolidate their positions, smaller domestic players are expected to benefit from increased M&A and other collaboration activities. StockCall professionals have completed fully detailed technical analysis on Frontier Communications Corp. (NASDAQ: FTR) and (NYSE: CTL). These reports can be downloaded for free at

Sprint Nextel Corp.'s interest in Clearwire has brought the spotlight on smaller telecom players. The competition got more intense when Dish Network Corp. decided to up the ante for Clearwire with a higher bid. While the domestic telecommunication sector deals with problems like paucity of funds for innovation and lack of economies of scale, the new undertakings in the sector bode well for the companies involved.

Frontier Telecommunications is going ahead with new product and services offerings. While Frontier mainly caters to the rural market in the country, it is expected to benefit from improving macro-economic scenarios. Frontier also recently collaborated with TRG Customer Solutions. Under this new collaboration, the company will provide enhanced security and back-up services. Frontier plans to target its corporate clients with these new products and the new offerings will likely help the telecommunication company in boosting its margins. Full technical analysis on Frontier Telecommunications can be accessed by signing up for free at

Apart from operational improvements, Frontier has been good with its investors as well. Though, the stock grew rather dull, 6 percent last year, the company made up for it by offering a delectable 10% dividend yield. While the company had to resort to slashing its dividend last year, the stock is still an interesting pick for dividend investors. Frontier also needs to brace itself for a fundamental shift in its business area as more and more of its customer base is now moving towards wireless services. Frontier stock is currently trading at Price Earnings ratio of 29.87, making it a better buy than its peers like CenturyLink Inc. [Free Technical Analysis Report on CTL](1) which trades at P/E ratio of 38.11.

CenturyLink, another major domestic communication player is also putting premium on innovation. The company recently announced the construction of its new Technology Center of Excellence. While the new construction points towards growth in the future, the company has not been very successful in converting the growth into higher bottom-line figures. CenturyLink made a couple of high-profile acquisitions in the past including the purchase of Qwest. Though, the acquisitions helped it to solidify its customer base, they did not lead to corresponding improvement in margins and profits. Its competitor Frontier Telecommunications, on the other hand, merged its purchase of Verizon rural accounts into its business, ahead of the schedule. Frontier is expected to show the positive impact of the acquisition in the coming quarters.

However, CenturyLink is looking to increase its hold in the data transmission area. Its acquisition of Savvis is likely to help it grow in the said sub-sector. CenturyLink stock offered a mild 8.5% last year, though it was supplemented by a 7%+ dividend yield ratio. However, one needs to keep in mind that the company is devoting a big chunk of its free cash flows to serve its high-dividend payments. This figure casts a shadow of doubt over the long-term viability of its dividends. So while the stock may be considered for a short-term purchase, investors are warned to remain cautious about the long-term outlook for the company.


  1. CenturyLink Inc. Technical Analysis [ ]

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