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Player Avatar TSIF (99.96) Submitted: 7/14/2011 5:33:52 PM : Outperform Start Price: $7.87 FTR Score: -0.15

An upthumb on Frontier Communications is a bit of a gamble as their overall fundamentals are not that special. As a provider of communications to small areas they are always in danger of getting their customers absorbed by a bigger player moving in. There is quite a bit of grant money in play to push communications into rural areas. My play is is partially on the dividend and how that will play in this sluggish economy. When playing a dividend here on CAPs there are several things to consider....willl the dividend and any appreciation in stock value beat the S&P. Since 3/09 the answer was usually no. At this time, the markets have slowed and Frontier's 9.4% dividend could be attractive. The second issue is whether a dividend is stable. This is a tricky question with Frontier who had a history of fairly stable dividends, but cut theirs over 25% about 4 quarters ago. Is it stable now??? Very hard to say, but the market currently has the P/S low as well as they doubt this, so there is some margin.

As with many communications company's, Frontier is highly leveraged. It's tricky to do the math as they borrow, repay debt, and run their company what the dividend security is. In other words, the dividend far exceeds the income line, but fits within the overall cash flow, barely. Frontier has taken on no new debt the last year, but their pay down on current is very neglibible. Take into account that some of the $750 Million in receivables could be in doubt and that their balance sheet is laden with $6 Billion in goodwill from acquisitions and you could have some future writedowns that might panic the investment community, but wouldn't affect cash flow.

So far my 3-4 high dividend plays here on CAPS are starting to "come around" as the market flattens. It takes 3-4 quarters to test this strategy and I'm generally not a very patient person. I'll try to give this one some time to mature.

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