Time To Sell Windstream Holdings Today

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 |  About: Windstream Holdings, Inc. (WIN)
by: Alan Goodman

Summary

The new structure will lead to lower combined payout.

Take your time to seek yield in more reliable cheaper stock.

Lock in your big capital gains now.

I have followed Windstream Holdings (NASDAQ:WIN) for a few years, and like most, found it on the Yahoo Stock Screener when I was searching for yield. As a long term investor, I like the idea of reinvesting some yield, because as a stock falls, I get more shares on the reinvestment, then over time as a stock recovers, I can compound my growth. This works only on companies that are healthy enough to continue to pay the dividend.

When reviewing a company's balance sheet and income statement, I look for how many quarters the company can afford to pay the dividend if the is no major news event to drastically change the outlook. At a glance, any company that is paying less than two thirds of its earnings per share in dividends has a respectable shot at continuing to make the dividend. The market rewards companies that raise their dividend on a regular basis, as these are deemed reliable (less risky) and the likelihood of a reduction or cessation of payment is low. Many articles on WIN look at the financial data this way and fail to recognize the cash flow coming from the hard line business in more rural areas, areas that typically are not serviced by Comcast (NASDAQ:CMCSA) and other cable companies. What I am saying it that the high debt and dividend payment that exceeds earnings is a warning sign, but the dividend as it stands not in immanent danger. There is however an opportunity here for those who hold the stock, and it should not be missed.

Assuming for a moment that the payout of $1 annually is continued, and I am not sure that it will be, it would take two to four years to get the big gain available with the spike in the premarket trading this morning. My point is that you can take the big capital gain, and invest somewhere like Intel (NASDAQ:INTC) or even Medallion Financial (TAXI) and sit on that dividend while you are working on your contingency plan for your profits.

If you are invested in WIN, I am hopeful that you have been a long-term investor and that you reinvested your dividends, thus reaping some nice gains. If you continue to hold WIN, look for a significant drop in the total payout as they separate into two companies, one REIT where 90% of the profits are required to be paid out and a separate entity that still pays a traditional dividend. The REIT will have possible tax implications that you will need to investigate. In any case, I look for the total payout rate to be lower today's excitement over WIN to be short lived.

Take your big gains now and lock them in.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.