WINDSTREAM HOLDINGS INC. $11(Nasdaq symbol WIN; Income Portfolio, Utilities sector; Shares outstanding: 602.7 million; Market cap: $6.6 billion; Price-to-sales ratio: 1.2; Dividend yield: 9.1%; TSINetwork Rating: Average; www.windstream.com) gets 73% of its revenue from high-speed Internet and business telecommunications. It also sells regular phone services, mainly in rural parts of the U.S.
The stock jumped 20% after the company announced that it would transfer its fibre-optic and copper networks, along with some land and buildings, to a new real estate investment trust (REIT). The company will then lease these assets from the REIT.
Windstream plans to hand out units in the new REIT to its own shareholders in the first quarter of 2015.
The company feels the spinoff will let it cut $3.2 billion from its $8.6- billion long-term debt, which is a high 1.3 times its market cap. That would give it more room to improve the speed and capacity of its networks.
Right now, Windstream’s annual dividend of $1.00 a share yields 9.1%. After the spinoff, the two companies will pay a combined dividend of $0.70 ($0.60 from the REIT, and $0.10 from Windstream), which would yield 6.4% based on the current stock price.
This spinoff is more complex than the ones we examine on page 73. However, it shows how spinoffs can quickly unlock hidden value.
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