NEW YORK (TheStreet) -- Frontier Communications (FTR) is a great buy from the perspective of shareholder value, identified as the net of dividend yield and buyback yield that comes out around 6%. Frontier Communications also has managed to reduce its debt, and therefore its overall capital structure is significantly better than last year's.
Frontier is having a great year during 2014 from a stock price perspective. Last year, we first started to compile lists of the cheapest stocks on the S&P 500 as measured by the CAPE Ratio, which is a tool of identifying potential deep value plays. Frontier was on a list of stocks that I provided to Meb Faber for a post last September (for the list click here). I also included this list in a newsletter which can be found right here and some discussion on the merits of stock picking based on the CAPE Ratio are discussed right here.
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As 2014 has progressed, there are now even more reasons to prefer Frontier. There was a paper written not long ago, titled "Enhancing the Investment Performance of Yield-Based Strategies," by Wes Gray, a professor at Drexel and a fund manager at Empiritrage. Central findings of this research were:
High dividend yield stocks do not reliably earn above-average risk-adjusted returns. More complete measures of shareholder yield, which account for net share repurchases, perform better. We explore the use of net-debt paydown as a way to further enhance shareholder yield. The addition of net-debt paydown enhances risk-adjusted returns and creates a shareholder yield metric that is more robust over time.