Windstream Corporation (WIN) announced second-quarter results on Thursday, August 9.
Revenue and earnings estimates were in line but the question on most investors mind is the high dividend yield safe or a red flag? The stock closed at $9.30 down 7.46% the day earnings were released increasing the yield to 10.75%. The high yield represents the market’s fear the dividend may not be sustainable. To answer the above question we need to take a closer look at the FCF (free cash flow) numbers.
WIN is reporting FCF of $134.5 million in the snapshot shown above. The dividend payout was about $147 million which converts to a FCF payout ratio of 109% for the quarter. The payout ratio looks better on a six month basis or 60%. The payout ratios are based on how WIN reports FCF but it is important to note it is accompanied by note A which states:
Adjusted free cash flow is adjusted OIBDA, excluding merger and integration expense, minus cash interest, cash taxes and adjusted capital expenditures.
The traditional measure of FCF is defined as cash from operations minus capex which produces a different picture as opposed to management’s definition. Here is how management calculates FCF:
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