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Frontier Communications Is Telegraphing A Dividend Cut

Frontier recently announced 2016 fourth quarter and full year results. The reaction was not positive. They continue to bleed customers but this is not surprising for anyone who’s following the company. The stock is tumbling due to the perception of a dividend cut on the horizon. The press release gave no indication of a cut so how was it telegraphed? If the common dividend is reduced a reverse split would be required to keep the stock from spiraling deeper into the penny stock realm. From the press release:

Frontier also announced that its Board of Directors has approved and will place before Frontier’s stockholders at the May 2017 Annual Meeting a charter amendment for a reverse stock split of Frontier Communications common stock. The charter amendment will provide for a reverse stock split ratio between 1-for-10 and 1-for-25, with the Board designating the final ratio within 90 days after the charter amendment is approved by stockholders. Concurrent with the reverse stock split, the conversion ratio of Frontier’s Series A 11.125% Mandatory Convertible Preferred Stock will automatically be adjusted proportionately.

Management created more uncertainty by not giving a detailed explanation or much of any explanation for that matter; a red flag. Why do a reverse split? An article on lists four possible reasons.

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