Opinions on Uniti Are Not United

By Malcolm Berko

February 28, 2018 5 min read

Dear Mr. Berko: What can you tell me about a company called Uniti Group, which has a 15.49 percent dividend yield? Do you think the dividend is safe, and would you buy the stock for long-term growth and income? My stockbroker — who lives in Little Rock, Arkansas, where the company is based — is aggressively recommending the stock, and his enthusiasm is very catching, especially with the high-yielding dividend. He occasionally has coffee with some of the company's employees. So, would you recommend that I buy 1,000 shares? — KK, Jonesboro, Ark.

Dear KK: Maybe! Read on, but keep in mind that your broker may be a little too close to the company to give the best advice.

Uniti Group (UNIT-$16.07) is an internally managed real estate investment trust that intends to prosper via the acquisition and construction of mission-critical infrastructure for the communications industry in the U.S. and a very dangerous country (for tourists) called Mexico. Formerly known as Communications Sales & Leasing, its name was changed to Uniti Group in February 2017. UNIT runs four business divisions: leasing, fiber infrastructure, consumer competitive local exchange carrier and those countries' 80-foot towers for the wireless industry that scorch the landscape with huge, ugly partitions of steel that look like scary next-century gamma ray weapons. UNIT also acquires and leases data centers and consumer broadband, and it provides infrastructure solutions such as cell site backhaul for wireless carriers. Its fiber network consists of 610,000 strand miles of fiber, with 6,000 customer connections, plus 470 wireless communication towers. And Kenny Gunderman, who is president and CEO, owns 272,000 shares of UNIT's 163 million-share float. Some 73 percent is held by institutions.

UNIT's quarterly 60-cent dividend yields, as you said, a sweet 15.49 percent, and of the 11 analysts who follow the company, seven have "buy" rankings, while the remaining four rate UNIT as a "hold." But I'm not impressed with UNIT's slow-growing revenues and its projected loss for 2018, and I have a sneaking suspicion that UNIT management will lower the $2.40 dividend this year by as much as a couple of dimes a share to pay the interest on the company's growing debt and to bolster its shrinking funds from operations. There is a 7.6 million-share short position (represents about four days of trading), which I suspect began to build when UNIT's shares began trading in the $30s. That was in February 2017, when traders realized that UNIT would not meet the previous year's revenue goal. Ned Davis Research, Zacks and Charles Schwab don't care a hoot for UNIT. However, Vanguard, BlackRock, Bank of New York Mellon, State Street, Oppenheimer and Ameriprise have not been sellers and own significant blocks of UNIT.

Even with UNIT's revenues stuck between $700 million and $800 million and seemingly little future growth, some observers believe that UNIT has various interesting assets in its portfolio that may be worth considerably more than the values posted on its balance sheet. They believe that UNIT may be undervalued by as much as $10 a share. Now, if your mental health is stable, if you're not hooked on alcohol or any hard drugs (pot is OK) and if you can emotionally handle a loss of 20 percent or more, then go for those 1,000 shares. But I'd hedge this bet and spend the next dozen Sundays in the amen corner of your church. I'd say you would have a 40 percent chance of making a 60 percent profit and a 60 percent chance of losing 20 percent or more in the next three months. And there's also a 35 percent chance that UNIT's board of directors will lower the dividend to $2 a share. Still, even with a $2 dividend, the yield on today's price would be 13.3 percent, and that's much higher than what most junk bonds could earn you.

Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775, or email him at [email protected] To find out more about Malcolm Berko and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate website at www.creators.com.

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