“…. the telecom industry had just recently taken a big hit. One of its industry leaders had just cut its dividend by 26%. The stock fell 23% in a single trading day.

“Panicked investors started selling – dragging down all stocks in this industry. It happens. And more frequently than I would like.

“So it was no surprise when a top CEO made this strong proclamation at its recent earnings conference call to soothe investor fears…

‘We support continuing to pay our dividend at its current rate.’ Good news!

“Especially when that stock is yielding a mouth-watering 11.8%!”

That’s the stock Roger Conrad is teasing today for his Big Yield Hunting newsletter, one of those $5/month services that have cropped up in recent years to bring in new subscribers … the newsletter generally looks for aggressive income stocks, picks that have unusually high yields — often because the market’s worried about something or the yield is seen by some as unsustainable.

We’ve covered a handful of Big Yield Hunting picks in the year or two that the service has existed — some up 40%, some down 40%, so as you might expect from a relatively aggressive stock picker they’re not all winners … but most are still paying pretty decent dividends, so let’s figure out which one he’s touting now and then you can check it out for yourself if you’re interested.

Here’s the spiel from Conrad that includes most of our clues for today:

“5 Reasons This 11.8% BIG YIELD is So Attractive

“To see if this CEO was on the level or just blowin’ smoke, I took a good, long look at this ‘yieldabeast.’

“First, I took a look at this telecom company’s historical stock price. I’ll admit it’s had its ups and downs. For example, the stock has traded north of $15 in February 2007, and south of $7 in March 2009. Then it was back up to $14.21 in December 2010… trending downward to a low of $8.18 in mid-November 2012. It’s closing in on $9 today.

“All the while – and to this day – it’s maintained its $0.25-per-share quarterly dividend. Buy 1,000 shares and you’re getting $1,000 a year in dividends.

“Second, I took a look at its growth rates. Basic phone service is less than a quarter of its revenue. Instead, most of its growth has occurred in the lucrative broadband business. That means its revenue is basically stable. And its free cash flow covers both dividends and capital spending by a healthy margin.

“Third, for a rural telecom company, this company has a coast-to-coast presence with nearly half a million business clients using 100,000 miles of fiber reaching big cities and small towns. Business and broadband revenue fueled an impressive 3.4% in the fourth quarter of 2012.

“Fourth, it has completely reorganized the company to streamline processes, improve efficiencies and lower costs.

“And finally, the company has significantly reduced debt.

“This all leads me to believe that the underlying business of this company is solid… and determined to maintain its dividend. So I believe the CEO was on the level about maintaining that generous dividend.”

So who are we being teased about here? Toss all that into the gaping maw of the Mighty, Mighty Thinkolator … and we learn that Conrad is touting: Windstream (WIN)

Windstream was known as Alltel for most of the past 30+ years, a local telephone company serving mostly rural areas, and over that time they’ve changed names a couple times (they became Windstream in 2006) and expanded, buying up unwanted fixed lines and fiber networks from the big operators or acquiring small telecom companies around the country.

As has been true for fixed-line operations for most companies, they’re shrinking when it comes to telephone revenue — but growing revenue in high speed data and broadband. The goal, it seems, is to keep growing the broadband and data services businesses fast enough that it outpaces the cash flow drop from fixed-line telephony — and that seems to be working reasonably well, at least so far, though with a very large debt burden they do skate fairly close to the edge. They have enough capacity in their revolver loan to cover the only near term debt maturity, which is $800+ million in about six months, but there is a steady drumbeat of $1+ billion in debt coming due most years starting in 2016 or 2017.

WIN pays a lot of interest on that debt, and they have large depreciation charges thanks to the huge fixed networks they operate, but countering that is rising service revenue and a capital investment plan that seems to consistently have them investing less in the network than they book as depreciation charges — so that’s where the dividend comes from, they dividend out most of their free cash flow (more than 80% for last year, though they say that will drop to the 61-68% range for 2013). So it looks like that’s possibly manageable as long as cash flow doesn’t start declining significantly — even if, compared to their actual reported income, it looks like they’re paying out a lot more than they’re earning. That’s a common thread among capital-intensive telecom companies, who almost all pay out dividends that are higher than profits (WIN had actual earnings of 28 cents versus dividends of a dollar over the last year — that’s because depreciation comes out of reported income but isn’t an actual cash expense).

I wouldn’t count on WIN increasing its dividend anytime soon, but if business proceeds on this trajectory, as Conrad apparently thinks it can (and the company agrees, of course — they outline their transformation in an investor presentation here), then they can probably keep paying out their dollar a year per share. The dividend has not changed in six years, so they’re anchoring themselves pretty tightly to that payout even during what were some tumultuous times for their stock.

The bigger question, probably, is whether you want to shoot for a 9-11% yield that will probably stay steady, at least for the coming year, or for a 4-5% yield that will almost certainly grow at a slow but steady clip. The former is represented by Windstream or their competitor Frontier Communications (FTR), the latter would be any of a number of larger, more diversified fixed-and-wireless companies either in the US (Verizon, VZ or AT&T, T) or internationally (Vodafone, VOD). Over the past few years investors have been choosing the latter, particularly in the US, and driving up shares of VZ and T while WIN and FTR have generally seen share price declines. CenturyLink (CTL), another local telephone company turning itself into a broadband and data company after buying Qwest and Savvis in recent years, is somewhere in the middle — their dividend is higher than VZ and lower than WIN or FTR, and was also recently cut. That cut gives the warning sign for telecom investors in general — that “industry leader” quote at the beginning of today’s note is about them, it refers to the moment last month when CTL announced they would cut the dividend their shares instantly collapsed … so Roger Conrad is right to focus on whether or not WIN really can keep the dividend going, high-yield investors in general and telecom investors specifically are very focused on dividend yield.

So what do you think? Want to take a little chance on Windstream for that high current income yield? Let us know with a comment below.

Personal disclosure: I own shares of both Verizon and Vodafone. I won’t trade any of the stocks mentioned above for at least three days.