Conrad calls on rural telecom

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"Rural telecom Consolidated Communications (NSDQ: CNSL) pays some of the safest and most generous dividends on the planet," says Roger Conrad in The Utility Forecaster.

"In one sense, rural phone companies are like energy unit trusts. Their key resource -- local phone lines -- is constantly depleting as customers switch to wireless phones, or adopt Internet-based service.

"Long-term sustainability depends on replenishing the resource with acquisitions of more rural phone lines and up-selling customers to broadband service.

"Even more important is the level of free cash flow, essentially operating cash flow less debt interest, cash taxes and capital expenditures. Free cash flow can be increased by boosting revenue, cutting operating expenses, reducing debt and buying back stock.

"As long as free cash flow is steady, a rural wireline company can sustain its dividend indefinitely. Should it falter, dividend cuts will follow. That won’t be a problem for Consolidated Communications, which has huge and rising cash flow.

"Consolidated is an 11%-plus yielder. No dividend is worth chasing unless it’s sustainable. Consolidated Communications’ second quarter numbers demonstrate its strengths clearly.

"Free cash flow--operating cash flow less debt interest, taxes and capital spending--covered the 38.738 per share quarterly payout by nearly 2-to-1.

"Like all wireline companies, Consolidated is losing basic phone customers to competition from wireless phones and broadband providers.

"The 8% drop over the past year, however, was more than offset by sharp gains in high speed broadband users (up 14.6%), Internet television customers (up 39.8%) and VoIP lines (up 92.8%).

"Meanwhile, the company cut debt interest costs 9.4% and began realizing synergies and savings from last year’s acquisition of lines in Pennsylvania.

"Holding its dividend over the long haul depends on producing result of that caliber quarter after quarter. But the ability to post numbers like those in an economy like this is a strong vote of confidence, as is bullishness by insiders and analysts."
 

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