The Association of U S West Retirees



Qwest considers dividend
2nd consecutive quarterly profit leads it to explore ways to reward investors
By Jeff Smith
Rocky Mountain News
Wednesday, August 2, 2006

Qwest Communications posted its second straight quarterly profit Tuesday and said it was looking at a way to reward stockholders, with one option to issue its first dividend in four years.  Qwest made $117 million in its three months ended June 30, but revenues remained stagnant at $3.47 billion.  Sale increases in DSL high-speed Internet services and communications "bundles" helped offset an ongoing decline in home land lines.

"I think it was a solid performance," Qwest Chief Executive Dick Notebaert said in a telephone interview.

Notebaert said Qwest's executive team is making a recommendation to the board of directors on how to return equity to shareholders, but he wouldn't elaborate.  Notebaert also serves as chairman of the board.

The Denver telco eliminated its dividend in 2002, after former CEO Joe Nacchio had slashed it from $2.14 to 5 cents a share annually after the merger with U S West in 2000.

Tom Friedberg, a former telecommunications analyst who now is a wireless consultant, said Qwest might be inclined to issue a one-time dividend or resume a quarterly payment, given the telephone industry ethos to pay dividends.

Qwest is the only regional Bell without a dividend.  Nacchio believed it was better to invest in growth.  But dividends have their advantages in terms of attracting additional institutional investors.

"A lost of institutional investors by charter have to own stocks paying a dividend," Friedberg said.  He added that while small shareholders and retirees also would favor a dividend, resuming a dividend overall is "more psychologically positive than actually meaningful."

Friedberg was underwhelmed by Qwest's quarter, noting revenues were flat and land lines declined at a larger than expected rate, down 5.3 percent year-over-year.

Denver investment manager Bruce Allen echoed that concern, saying that while Qwest has enjoyed a remarkable turnaround since 2002, it has largely been through cutting costs.  Allen said he worries about the company's future, in part because it doesn't have its own wireless network, an engine of growth for other Bells.

Both Friedberg and Allen believe Qwest stock is overvalued compared with Verizon, AT&T and BellSouth.

Qwest shares were up again Tuesday, nearly 8 percent, to $8.40.

Notebaert emphasized the company's growth areas, such as DSL, long-distance, data services and communications.

Qwest ended the quarter with 1.8 million high-speed Internet subscribers, up 51 percent over the same period a year ago.  The company's capital expenditures in the quarter increased to $442 million from $352 Million, with much of the money focused on expanding high-speed Internet service.

Average monthly revenue per customer also increased 7 percent to $49.41.

Qwest's work force declined 3.3 percent to 38,843, and Notebaert indicated Qwest would continue to let attrition take its course.

Qwest bought OnFiber, a business communications provider, for $107 million during the second quarter, and Notebaert said Qwest continues to "scan the horizon" for other deals.  But he said the company will continue to be disciplined, looking for a short payback on the deals.,2777,DRMN_23916_4886661,00.html