Uniti Group: I Just Bought Shares Of This 16% Yielder

I take a lot of pride in the fact that my portfolio has never experienced a dividend cut. I came close once with KMI, but I managed to sell the position before the cut was announced. I spend a lot of my time during the due diligence process focusing on dividend-related metrics with a specific focus on sustainability and dividend growth prospects. Well, I just put that perfect record at risk with a purchase of Uniti Group (UNIT) shares at $ 15.01, or a very hefty 15.98% yield.

This ~16% yield is nearly double my previously high yield, which was Omega Healthcare Inc (OHI) at just a tad bit more than 8%. Typically, when I see yields in the double digits, I get nervous. Yields that high mean the asset is distressed. When looking at stocks like UNIT investors are receiving a very high potential reward for exposing themselves to a very high perceived risk. I’m not a huge fan of making these risky bets. But, I’ve spent a lot of time reading articles and commentary about UNIT published over the last couple of weeks focused on the company’s enormous ~40% fall since the start of August. I’ve read enough bullish commentary to get me interested in the stock, especially from contributors here at Seeking Alpha that I’ve come to respect over the years.

Honestly, I think this company’s recent drama has been exhausted by the Seeking Alpha community and I don’t have anything new to add to the conversation other than the fact that I am now long the stock. I like to keep followers up to date on my recent portfolio maneuvers though, so I wanted to write this piece. However, instead of re-hash the pros and cons of UNIT ownership here, I will link you to some of my favorite articles recently published regarding UNIT.

My absolute favorite REIT contributor here at Seeking Alpha is Brad Thomas. Mr. Thomas has led me to highly profitable investment decisions on several occasions. I respect his opinion in the REIT space above all others. In late August/early September, he published two bullish pieces on UNIT (when shares were trading at levels much higher than they are today). One of them remains behind SA’s Marketplace paywall, but another is free to the public. Here’s a link to Mr. Thomas’s most recent UNIT piece which includes an informative interview with UNIT’s CEO Kenny Gunderson and a reiteration of Mr. Thomas’ “BUY” rating on shares post Q2 results.

Another UNIT piece that really caught my eye was Dividend Sensei’s recent article explaining why he’s adding to his UNIT stake, making it his largest individual position. I really like Dividend Sensei’s work here at SA. He puts together a very in-depth analysis that is also easy to understand. I admit that I am much more risk-averse than he seems to be. He trades with margin and oftentimes seeks much higher yields than I do. I would never allow a company like UNIT to become my largest holding. Actually, I don’t imagine a future where UNIT ever makes up more than 1% of my overall portfolio (right now, it’s weighting is ~0.375%). Even so, I oftentimes find is opinions to be more than reasonable and while our portfolio management strategies aren’t the same (which is to be expected because no two people are in the same situation when it comes to personal finance and long-term financial goals), I still respect his opinion immensely.

I’ll talk more about this piece in a bit, but Ian Bezek’s recent article on the matter was valuable to me as well, especially in terms of trying to put this company’s potential risks into perspective against what seems to be an overly bullish consensus amongst SA contributors and readers, mainly, I think, because of UNIT’s incredibly high yield. Ian is long UNIT, although as of his latest piece, he hadn’t added to his position on more recent weakness. I think Ian has a keen eye for value and the fact that he too was long, played a role in my decision-making.

Alpha Gen Capital wrote a particularly bullish piece, hinting at the fact that UNIT could be one of the year’s best opportunities due to recent overreactions in the share price movement. This piece really breaks down the issues that UNIT is facing with WIN, some of the potential fallouts of legal/bankruptcy scenarios. All of this is very confusing and remains highly speculative, though my main takeaway is that it appears likely that, regardless of a WIN bankruptcy, UNIT will still be in a position of strength due to the Master Lease arrangement it has with WIN. Lease re-negotiation still appears to be a possible scenario here, which would change the landscape that UNIT operates in the present, but for the time being, I’m willing to trust in the payments from the Master Lease deal and rely on the strength of UNIT’s infrastructure, which should remain in demand moving forward.

And most recently, Beyond Saving and Dane Bowler have written pieces regarding the breaking news that broke this week surrounding more legal/head fund issues regarding WIN bonds defaulting. The comment streams following all of these pieces have been enlightening. There are bulls and bears on either side of the aisle, but I was pleasantly surprised to see that another one of my favorite SA REIT contributors, Bill Stoller, recently went long UNIT as well. As far as I know, Mr. Stroller hasn’t published an article focused on UNIT, but I’ve seen him make enough solid calls in the past to give weight to his recent purchase in my own decision-making process.

So, there you have it. This is a unique situation for me, investing in a speculative income play like this. I may not like to take big risks like this, but I have always said that I like to buy things when they’re cheap. At this point, I admit that UNIT could just as easily turn out to be a value trap as it could a tremendous value. Looking at the value of the company’s assets and its cash flow potential, I see validity in calls that have price targets in the $ 35-40 range. That would imply massive upside at today’s prices. Due to issues that UNIT faces with its over-reliance on distressed Windstream (WIN), I don’t foresee UNIT selling anywhere near the fair value of its parts anytime soon though, so their estimates really amount to a hill of beans.

There are so many rumors and potentially headwinds swirling around this stock that I think it’s nearly impossible to predict its future share price movements. I wouldn’t be surprised to see a short squeeze that sends the stock rocketing up to $ 20 or more tomorrow. I also wouldn’t be surprised to continued pressure on shares, sending them down into the single digits. I won’t attempt to signal any sort of direction of these shares; simply put, I acknowledge that I am speculating here.

This is why I bought a relatively small, ¼ position. I bought these shares because of the combined upside potential of the shares in a turnaround as well as the very high ~16% dividend yield. Right now, it appears that UNIT’s dividend is covered by AFFO, which management expects to come in somewhere in the $ 2.50 range in 2017. This is a good thing. However, as discussed at length in this article by Ian Bezek, a dividend cut may still be in the cards because without one, it will be very difficult for UNIT to raise cash.

UNIT needs to raise cash over time to continue to diversify itself away from WIN. Right now, WIN makes up ~70% of the company’s business. Management has stated plans to get this ratio down to ~50% in the short-term; however, this transformation will require additional acquisitions and I think it’s ludicrous to think that UNIT management will be able to find investments with cap rates that exceed its current dividend yield.

Because of this scenario, one could argue that a dividend cut for UNIT would actually be a good thing for the long-term. It might enable it to continue to diversify away from WIN exposure and grow its asset base. Michael Boyd wrote an article focused on this possibility today. This general point was that a distribution cut for UNIT is the right move for management to make. Once again, in the comment section, there are members on both sides of the fence of this issue. There are many question marks when it comes to UNIT in the present, but the one thing that is clear is that the company’s 16% has surely caught the eye on SA’s dividend and income community.

My portfolio’s rule regarding dividend cuts is cut and dry. A cut equals a sell, without exception. Well, being that an investment in UNIT breaks just about half of my stock screening rules anyway, I will be in wait and see mode if UNIT should slash its dividend. This is a small enough position for me that in the event of sudden weakness, it won’t do significant damage to my portfolio’s overall returns. On the flip side of this coin, UNIT’s yield is high enough to move the needle a bit in terms of my annual income expectations. Due to its extremely high yield, this ¼ position in UNIT is currently scheduled to generate the same amount of income as a typical full position with a “normal” yield for my portfolio would over a year in just a couple of quarters (my portfolio’s overall yield is just a tad above 2%).

Investing in distressed assets has led to riches for investors throughout the history. It has also lead to ruins. I’m not saying that I’m smart enough to pick and choose the winners, but I have seen enough bullish opinions from well-respected analysts/contributors to inspire me to make a small bet on UNIT. I don’t think these shares are for the faint of heart. There are so many rumors flying around regarding WIN that attempting to trade in and out of UNIT on a daily basis seems to be a fool’s errand as well. I plan on stashing the small position of UNIT shares that I bought at $ 15 away and accepting the income that they generate for my portfolio, whatever that may be. I bought one day before UNIT went ex-dividend, meaning that I’ve already captured one $ 0.60 payment. I don’t know how many more investors can expect at this level, but if management is able to maintain the dividend, I expect to do quite well here.

Although I realize that I may end up having to stay in this name for awhile depending on what happens moving forward, I don’t think this is a buy and forget type of stock. It’s both a speculative income play as well as a turnaround play. If it turns around, I think it will turn around quickly. I will continue to monitor the business and management’s attempt at diversifying its customer base. If management cuts the dividend I’m sure the share price will suffer and at that point I’ll be in it for the long-haul, hoping for a Kinder Morgan-like recovery post dividend cut. If the market receives better than expected news out of WIN and UNIT bounces drastically, I will be happy to sell my shares, taking my profits large short-term profits (these shares are held in a tax-advantaged account so that I don’t pay taxes on that hefty dividend).

Disclosure: I am/we are long UNIT, OHI.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Tech

Amazon joins Kubernetes-focused CNCF industry group

The Cloud Native Computing Foundation, created to promote and develop technologies like Kubernetes and core components of the container ecosystem spawned by Docker, welcomed Amazon Web Services into its fold this week.

Amazon comes on board as a top-level (“platinum”) member. According to Amazon’s Adrian Cockcroft, now a member of the CNCF’s governing board, containers are the big reason Amazon’s getting involved — at least, initially.

Amazon already has a major investment in container tech. Its ECS service provides managed containers that run via machine images deployed on clusters of EC2 instances. Its older Elastic Beanstalk service can deploy and manage Docker containers, although they’re scaled and managed via Amazon’s own internal stack, not the CNCF’s Kubernetes. And users can always manually deploy Docker Enterprise Edition, a container-centric Linux such as CoreOS, or a Kubernetes cluster on EC2.

To read this article in full or to leave a comment, please click here

InfoWorld Cloud Computing

Privacy group shoots legal arrow at Privacy Shield

Privacy Shield, the legal agreement allowing businesses to export Europeans’ personal information to the U.S., is under fire.

An Irish privacy advocacy group has challenged the adoption of the decision in the EU’s second-highest court, Reuters reported Thursday, citing sources familiar with the case.

Privacy Shield took effect in July, replacing the Safe Harbor framework, which had itself fallen victim to a legal challenge in October 2015. The new agreement supports transatlantic commerce worth $ 260 billion, U.S. Secretary of Commerce Penny Pritzker has said, and has consequences for many companies offering cloud services to consumers.

To read this article in full or to leave a comment, please click here

Computerworld Cloud Computing

The Control Group Honored as Gold, Silver and Bronze Stevie? Award Winners in 2015 American Business AwardsSM



Sean Shahrokhi, Director Communications & Public Relations, The Control Group


The Control Group was presented with Stevie® Awards in the following categories: Gold – Information Technology Team of the Year – The Control Group, Silver – Innovation of the Year – Instant Checkmate, Bronze – Maverick of the Year, Shiem Edelbrock, CTO and Bronze – Corporate Social Responsibility Program of the Year – The Control Group, at the 13th Annual American Business Awards in Chicago on June 22nd.

The American Business Awards are the nation’s premier business awards program. All organizations operating in the U.S.A. are eligible to submit nominations – public and private, for-profit and non-profit, large and small.

Nicknamed the Stevies for the Greek word meaning “crowned,” the awards were presented to winners during a gala banquet on Monday, June 22 at the Fairmont Chicago Millennium Park Hotel. More than 400 nominees and their guests attended.

The awards were presented in two ceremonies, before and after dinner. The after-dinner presentation were broadcast live nationwide by BizTalkRadio. The pre-dinner presentations were taped and will be broadcast by BizTalkRadio on Thursday June 25 at 8:00 pm ET.

The 2015 American Business Awards will be presented at two awards events: Monday’s banquet in Chicago, and at the new products awards banquet on Friday, September 11 in San Francisco.

More than 3,300 nominations from organizations of all sizes and in virtually every industry were submitted this year for consideration in a wide range of categories. The competition encompassed many top national companies in a wide range of respective fields which made the wins for The Control Group all the more prestigious.

“We were extremely honored to win our first four ABAs and excited to have taken the Gold for IT Team of the Year,” said Sean Shahrokhi, Director of Communications and PR for The Control Group. “Our team of developers, designers, architects, and stakeholders are what help make The Control Group one of San Diego’s fastest growing companies and an incubator for talented individuals devoted to technological accomplishments and efficiency.”

More than 200 executives worldwide participated in the judging process to select this year’s Stevie Award winners.

“We are extremely impressed with the quality of the entries we received this year. The competition was intense and every organization that won should be proud,” said Michael Gallagher, president and founder of the Stevie Awards. “To those outstanding individuals and organizations that received Gold, Silver, and Bronze Stevie Awards, the judges and I are honored to celebrate your many accomplishments. You are setting a high standard for professionals nationwide.”

The Control Group has also been nominated as ABA finalists for Executive of the Year (Kris Kibak, CEO) and for Company of the Year, winners of both to be announced on September 11th in San Francisco. Details about The American Business Awards and the lists of Stevie winners who were announced on June 22 are available at http://www.StevieAwards.com/ABA.

About The Control Group

Created in 2011, The Control Group is one of the fastest-growing technology companies headquartered in San Diego. Their expertise is in web development and internet marketing. The company is the developer of InstantCheckmate.com, one of the top people search engines in the world. Because the company is already profitable, it has been able to develop a company culture that is shaking up the Southern California business community. Core to the company culture is its reach into the community to make a positive impact by volunteering and getting involved in important causes.

About The Stevie Awards

Stevie Awards are conferred in six programs: the Asia-Pacific Stevie Awards, the German Stevie Awards, The American Business Awards, The International Business Awards, the Stevie Awards for Women in Business, and the Stevie Awards for Sales & Customer Service. Stevie Awards competitions receive more than 10,000 entries each year from organizations in more than 60 nations. Honoring organizations of all types and sizes and the people behind them, the Stevies recognize outstanding performances in the workplace worldwide. Learn more about the Stevie Awards at http://www.StevieAwards.com.

Sponsors and partners of The 2015 American Business Awards include BizTalkRadio, CallidusCloud, Engility, Fareportal, John Hancock, PetRays, and Softpro.






NexTec Group Expands Cloud ERP Offering

With a growing need for mid-market cloud ERP solutions, NexTec Group is proud to announce the addition of Acumatica Cloud ERP to their expanding portfolio of ERP products available to their clients.

“As an ERP provider, it’s our job to research and provide the best solutions for our clients,” said Eric Frank, President and co-founder of NexTec Group. “Adding cloud-based Acumatica ERP to our portfolio allows us to provide more freedom of choice and flexibility for our clients due to its strong financial, distribution, CRM, and project accounting modules.”

Jon Roskill, CEO of Acumatica, said: “We are excited to welcome NexTec Group into our Acumatica community. NexTec is a successful and well-regarded company with all the qualities we look for in a partner. We look forward to helping them grow their practice with our award-winning Cloud ERP product.”

NexTec Group is a leading provider of technology for business, delivering comprehensive ERP, CRM and BI solutions targeted to the unique needs of our clients. With more than 20 years of experience, NexTec Group works to address the industry challenges faced by food and beverage companies, manufacturers, pharmaceuticals, nutraceuticals, professional service agencies, government organizations, healthcare facilities, non-profits, financial service firms and oilfield services.

Acumatica is a leading provider of cloud business management software that empowers small and mid-sized businesses to unlock their potential and drive growth. Built on the world’s best cloud and mobile technology and a unique customer-centric licensing model, Acumatica delivers a suite of fully-integrated applications, powered by a robust and flexible platform.