9/15/11: Sizing Up Seward’s Folly
Alaska Communications’ (NSDQ: ALSK) stock has been knocked down more than 35 percent this year and now yields about 12 percent, despite relatively few near-term risks to its dividend. This is a result of investors’ flight from risk rather than business weakness.
Our bet is the company will continue to perform by covering its distribution with free cash flow. Once the de-risking trend runs its course, it will then recover its lost ground in the market, handing us potential capital gains of at least 25 to 30 percent in addition to the current yield. Downside is probably the $5 to $6 per share range, which we could see if actual dividend risk grows. We’ll know more on Oct. 28 when the company releases third-quarter numbers.
As with all Big Yield Hunting recommendations, investors should hold Alaska Communications only in diversified portfolios and maintain enough mental discipline not to average down. Buy Alaska Communications and its 12 percent yield up to USD8.
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