Although our sister publication Utility Forecaster sold Windstream Holdings Inc (NYSE: WIN) in late February, we decided to continue holding the stock for a while longer. But with the stock’s recent ascent since its closing low of $7.20 in early February, now seems like an opportune time to finally sell this position.

There were two reasons we held onto Windstream until now, neither of which had anything to do with our belief in its growth prospects, though it was nice to continue collecting the dividend:

1. The prior editorial team recommended Windstream as a turnaround play after the stock had already suffered a steep decline, with an entry price of $8.48 back on Feb. 22, 2013. With the exception of the selloff earlier this year, that price was a pretty solid floor for this stock, providing us with substantial leeway to bide our time.  
2. This is a far more speculative service than UF, and we could, therefore, risk waiting for the market to offer a more profitable exit point.

We know that a number of income-oriented investors are enamored of Windstream’s high yield, which even after its recent rebound is still a lofty 10.3 percent.

Though we waited several months longer than UF to exit Windstream, timing is our only divergence in this respect. Indeed, we agree with UF Chief Investment Strategist David Dittman’s rationale for selling the stock, which was “rooted in [his] concern about the ability of Windstream’s strategic broadband and business services operations to make up for the continuing and inevitable deterioration in its high-margin legacy wireline operations.”

Windstream’s top line is expected to suffer a steady attrition, at least through next year, with analysts forecasting declines in revenue of 2 percent and 1 percent for full-year 2014 and 2015, respectively.

The company still generates strong adjusted free cash flows (FCF), and these should be supportive of the dividend in the near term. In fact, first-quarter adjusted FCF came in at $314 million vs. the consensus estimate of $208 million, largely thanks to the wind down of heavy capital spending. Even so, the lack of revenue and customer growth is deeply troubling.

As UF observed, “Debt-reduction efforts have stalled amid stagnant revenue and earnings growth. And Windstream, which took on debt to expand its footprint and become a national broadband and business services provider, faces increasingly stiff competition from companies with greater balance-sheet flexibility.”

While the company has managed to maintain the $0.25 quarterly dividend since early 2007, it’s coming under increasing pressure from both lenders and analysts to cut its payout and redeploy this capital toward reducing leverage.

Of course, management surely knows that a dividend cut will cause yield-hungry investors to abandon the stock en masse, as they’re certainly not hanging around for Windstream’s questionable growth story. So management is shrewd to maintain the current payout for as long as possible.

But eventually, they’ll have to succumb to reality, and we don’t want to be around when that happens.

Since recommendation, Windstream’s shares have risen 14.3 percent on a price basis and 33.3 percent on a dividend-reinvested basis, the latter of which actually beat the S&P 500’s performance by 1.2 percentage points during our holding period.

Analyst sentiment is essentially neutral with a bearish tilt, at three “buys,” eight “holds,” and five “sells.”

The consensus 12-month target price is $8.75, which is actually 9.7 percent below the current share price. This suggests that the stock currently trades well in excess of fair value.

Sell Windstream Holdings.