Windstream Spin Off, dividend cut?

Windstream (WIN) is spinning off a REIT that will encompass most of its fiber/copper and real estate assets.  The goal of this appears to be a fancy way of ridding itself of debt.  The new company is called Communications Sales and Leasing, Inc. (CSAL).  As a stockholder will this be in my favor?  Let's take a look.

For every 5 shares of WIN I will receive 1 share of CSAL.  For example if I owned 1000 shares of WIN, after the spinoff completes I will own 1000 shares of WIN plus 200 shares of CSAL. 

The dividends will change from an annual $1/share for WIN all the way down to $.10.  The CSAL dividend is expected to be $2.40 per share annually.

WIN does mention it will sell its stake in CSAL to reduce debt.

I was confused by the next snippet in the letter to shareholders.  If you can explain it to me I would appreciate it.  The quote is "After giving effect to the interest in CS&L retained by Windstream, each shareholder at the time of the spinoff will receive the equivalent of a $.48 per share Windstream dividend per annum."  I am reading that as when WIN dumps it's shares of CSAL the WIN dividend will then go from $.10 up to $.48 per share annually.  Is that right?

So if a shareholder current owns 1000 shares they were receiving $1000 annually in dividend income (1000 * $1=$1000.00)

Initially after the spinoff the annual dividend income (total of both) will be
1000 * $.10=$100.00 WIN
200 * $2.4=$480.00 CSAL
For a grand total of $580.  This is close to half the current dividend.  A pretty major cut.

Even after WIN sells it stake and the dividend goes up a little it is still a cut.
1000 * $.48=$480.0 WIN
200 * $2.4=$480.00 CSAL
Total = $960

I understand why they are doing this.  With the current payout ratio trending to always be above 100% it would have been likely that the dividend would be cut (by a lot).  With this strategy they are able to keep the dividend close to the original but at the same time reduce debt.  Will this make the balance sheet better and get that payout ratio back to something sustainable?  Only time will tell.  Regardless the dividend isn't increasing so this is not a dividend growth stock.

Cut and run or hold?  What do you think?

Full Disclosure: I own WIN.

Comments

  1. Hi DFG,

    The way I interpret that statement is "if you hold onto your WIN shares, then the CSAL dividends you'll be getting as a result will be ($2.40 / 5) or $0.48 for each WIN share you have."

    It does not mean that the WIN dividend will increase by another $0.48; just that you'll get dividends from CSAL worth $0.48 for each WIN share that you hold but who knows what their dividend policy is past the first year. So your first calculation is correct I think.

    I've not looked into either company so I have no advice for you. My first instinctive inclination would be to get out of that position before the spinoff - the dividend is decreasing significantly.

    ReplyDelete
    Replies
    1. Yeah should have sold it when it was up. Now I would take a loss... :-(

      Delete
  2. CSAL is born to die. The WIN investor spin for the Feb 20th shareholder vote quotes CS&L paying a $2.40 dividend. Wrong! they are paying a $1.76 dividend. Is this unfair to shareholders?
    Ans. Yes. Bad beginning for CS&L and a harbinger of a worse end. Win packaged all of it's toxic assets (copper wire-dsl-1st gen fiber-outdated hub switch centers) and 4 Billion in debt in CS&L.
    Can CS&L maintain the archaic infrastructure, service the debt, pay it's employees, and pay a dividend on the fixed income of a single customer WINDSTREAM? Ans. No. WIN can kill CS&L anytime by pairing back the lease contract. Win took everything ugly and put it in CS&L. They still kept 66,000 miles of A class fiber. WIN is well positioned for a CS&L divorce. CS&L is poorly positioned for everything. So, how did this pass the smell test? How did WIN sneak this cheese by the SEC mouse? It is not an IPO, it is a spin-off. WIN abuses the rules and their loyal shareholders.
    Which would WIN rather look at; unhappy shareholders, or $4Billion debt? Ans. Shareholders. I held 10,200 shares of WIN and dumped it after 94% of the shareholders voted for the 6-1 perverse split and the spin-off. That had to be a railroad job and a lie. Are 94% of the shareholders happy today? You answer that one. I am $25,000 better off for exiting. The worse is yet to come. Take you 75% of value and run. I say perverse split because, an $8 share price did not go to $48 and the number of shares reduced to one sixth. The price stayed the same. You just lost 84% of you stock. Oh of course, they neatly packaged you up with a spin-off of toxic assets and debts, and hoped you did notice the 50% dividend cut. really? How do you get 94% of the shareholders to support that? It is a page from MCI, Worldcom, and Adelphia only it is much harder to put the managers in prison, because 94% of the shareholders voted for it. If you want to believe that then you will buy more WIN and CS&L tomorrow. Face it, no one will do that. Dump it now.

    ReplyDelete
  3. CSAL is born to die. The WIN investor spin for the Feb 20th shareholder vote quotes CS&L paying a $2.40 dividend. Wrong! they are paying a $1.76 dividend. Is this unfair to shareholders?
    Ans. Yes. Bad beginning for CS&L and a harbinger of a worse end. Win packaged all of it's toxic assets (copper wire-dsl-1st gen fiber-outdated hub switch centers) and 4 Billion in debt in CS&L.
    Can CS&L maintain the archaic infrastructure, service the debt, pay it's employees, and pay a dividend on the fixed income of a single customer WINDSTREAM? Ans. No. WIN can kill CS&L anytime by pairing back the lease contract. Win took everything ugly and put it in CS&L. They still kept 66,000 miles of A class fiber. WIN is well positioned for a CS&L divorce. CS&L is poorly positioned for everything. So, how did this pass the smell test? How did WIN sneak this cheese by the SEC mouse? It is not an IPO, it is a spin-off. WIN abuses the rules and their loyal shareholders.
    Which would WIN rather look at; unhappy shareholders, or $4Billion debt? Ans. Shareholders. I held 10,200 shares of WIN and dumped it after 94% of the shareholders voted for the 6-1 perverse split and the spin-off. That had to be a railroad job and a lie. Are 94% of the shareholders happy today? You answer that one. I am $25,000 better off for exiting. The worse is yet to come. Take your 75% of value and run. I say perverse split because, an $8 share price did not go to $48 and the number of shares reduced to one sixth. The price stayed the same. You just lost 84% of you stock. Oh of course, they neatly packaged you up with a spin-off of toxic assets and debts, and hoped you did not notice the 50% dividend cut. really? How do you get 94% of the shareholders to support that? It is a page from MCI, Worldcom, and Adelphia only it is much harder to put the managers in prison, because 94% of the shareholders voted for it. If you want to believe that then you will buy more WIN and CS&L tomorrow. Face it, no one will do that. Dump it now.

    ReplyDelete

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