A blog about dividend investing and financial independence for a person supporting a 7 person family on one income. My goal is to be retired at age 55 to pursue other passions in life and rely on a passive income stream generated from dividends.
Friday, April 17, 2015
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
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
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
200 * $2.4=$480.00
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
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.