Income is a big part of investors' returns. Stocks, mutual funds and fixed income ideas in this column are featured because they are relatively solid in their ability to pay dividends or interest. We're giving income investors a resource to start their research for investments that give better yields with lower risk.

September 29, 2010 - Frontier Communications Corp. (FTR-NYSE) provides regulated and unregulated voice, data, and video services to residential, business, and wholesale customers in the United States.

It also provides television services which include access to various digital television channels featuring movies, sports, news, music, and high-definition TV programming; and wireless data services.

The company was formerly known as Citizens Communications Company and changed its name to Frontier Communications Corporation in July 2008. Frontier Communications Corporation was founded in 1927 and is based in Stamford, Connecticut.

This stock paid $1.00 in dividends annually for the last 5 years. Now it's recently down to 75 cents to reflect tougher economic times. Even so, because the stock price is $8.24, the yield is very attractive at 9.10%. Still, the dividend is larger than earnings, and while cash flow will cover the dividend, it's rarely a good sign when a company is paying out more than it earns. Will that change?

Earnings are definitely turning for the better. While last year they dropped to 38 cents from 57 cents in 2008, this year, 10 analysts have a consensus view of 49 cents a share (with a range of 33 cents to 61 cents). Next year, they see 46 cents (with an even wider range of 24 cents to 77 cents). Third quarter results should be out in October or early November. Expect 11 cents a share (range is 7 to 14 cents) vs 17 cents last year in the third. For the final quarter, look for 10 cents a share, well above the 1 cent of last year's fourth.

Expect management to cut more costs as the new acquisition blends into operations. Most likely consolidation of billing systems, selling, general and administrative (SG&A) and leveraging its established infrastructure will be the plan of attack. Management thinks it will save $500 million a year once new customers are fully assimilated. For income investors, that means even stronger cash flow to keep the high dividend, maybe increase it.

By cutting the dividend this year, FTR can use the funds to pay down debt (there's $4.81 billion of it) as well as build more infrastructure or upgrade the existing networks.

More numbers: Market Cap is $8.16 billion. Trailing P/E is 19.41 while the Forward P/E is 17.89. Price to sales ratio is 3.89. Price to book is 9.86. Operating margin for the last 12 months was a remarkable 33.45% while Profit margin was 6.44%. Return on equity was also noteworthy at 38.47%. Return on assets was 6.31%. Revenues were 2.08 billion. Total cash is $231.15 million or 23 cents a share. Debt to equity is 18.50 times. Current ratio is 1.76. Book value per share is $ .83. Beta is .76. There are 992.02 million shares outstanding with a Float of 988.21 million. Insiders own .17% while Institutions have 18.40%.

Some of the valuations will make many investors pause. But income investors with a some tolerance for risk should find this stock of interest, especially since it recently came off its low of $7 a share. Even at the market's lowest point in March of 2009, the stock bottomed at $5.30 share. If management can successfully integrate the new Verizon customers and achieve the annual cost savings of $500 million, this stock could easily regain its old high of $19 set in 2000.

Remember, with high depreciation rates (which are not a cash item), utilities like telecommunications companies will often have lower earnings than dividends without endangering the pay out.

- Company Web site: www.frontieronline.com

- Ted Allrich