Tag - CNSL

"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."
 

The Russell 2000 small-cap index is up strongly this afternoon, as stocks extend their rally. At 3:13 p.m. ET the Russell 2000 was up 9.82 points, or 1.18%, to 843.52. The Dow Jones Industrial Average had added 108.93 points, or 0.81%, to 13,517.55.

Shares of North Pittsburgh Systems, Inc. (Nasdaq: NPSI) are rising, up $2.92, or 14%, to $24.17, following news the holding company of a number of telephone public utilities is being bought by Consolidated Communications Holdings Inc. (Nasdaq: CNSL) for $375.10 million.

Before the start of Monday’s trading, Consolidated Communications Holdings Inc. (Nasdaq: CNSL) announced it is acquiring North Pittsburgh Systems (Nasdaq: NPSI) for $375 million in a cash and stock deal. On a midday conference call, Consolidated’s management explained their reasons for buying North Pittsburgh, much of them having to do with cash flow.

“Most importantly, it improves our dividend payout ratio through operating efficiencies and driving annual cash synergies,” Consolidated’s CEO Bob Currey said on the call. “It’s cash flow accretive in the first full year of operations. This is a good transaction for Consolidated.”

Currey said North Pittsburgh’s customers and 300-mile fiber optic network were attractive. As of March 31, North Pittsburgh served 127,000 telephone customers and 16,300 Internet customers, Currey said. The quality of North Pittsburgh’s network is industry leading, he said. Currey said more than 95% of North Pittsburgh’s local loops – copper wires that run to subscribers and back to the company’s offices – are less than 5,000 feet. Because of the North Pittsburgh’s existing network, he said Consolidated will be able to roll out IPTV, the company’s broadband video technology.

“This is a solid company with a high priority for their network,” Currey said. “This is as good as our network if not better.”

Consolidated Communications is Mattoon, Ill.-based telecommunications holding company. The company specializes in residential and business communications services to customers in Illinois and Texas. Consolidated also provides telephone service to county jails and state prisons.