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Can Frontier Communications Recover?

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High dividend stock

Frontier Communications (FTR) has been attractive to dividend investors in the last few years. It ranks among the highest in the stock market. However, FTR is finding it difficult to maintain its stock price and keep it from falling continuously. There are also concerns about the company’s ability to retain customers and the growing cost of acquiring new customers.

Although FTR has raised its dividend by 5%, the company is finding it challenging to make its acquisition strategy pay off in the long term. FTR stock has fallen by 31.93% since January 2015 after an impressive 2014 in which it generated shareholder returns of more than 53%.

In comparison, peer company CenturyLink (CTL) has fallen by 29.18%. AT&T (T) has risen by 2.08% since January 2015.

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Frontier stock falls after investor euphoria

Between January 2015 and March 2015, the price of Frontier Communications stock rose by 30% on the back of solid 4Q15 financial results. That quarter, it reported the addition of 420,000 broadband customers and 191,000 new video service subscribers.

In February 2015, Frontier made a substantial purchase of Verizon’s (VZ) wireless assets in Texas, California, and Florida. Frontier agreed to pay $10.5 billion for the assets. This deal ensured increased exposure in markets with high growth potential.

However, investor sentiment subsided when Frontier declared its 1Q15 results and fell short on revenue as well as net income. There was also a lack of guidance about the pending Verizon acquisition, which created uncertainty among stakeholders.

Future outlook

In spite of its lackluster performance, Frontier has a huge opportunity with the Verizon acquisition. It will provide the company access to a huge customer base that includes 3.7 million voice customers, 2.2 million broadband customers, and 1.2 million customers with Verizon FiOS Service. Verizon has reportedly spent billions to build its FiOS network. Frontier has a tremendous opportunity to offer high-speed Internet services to a large customer base that’s ready for the same.

Frontier Communications comprises 0.65% of the Technology Select Sector SPDR ETF (XLK).

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