Rewarding Income Investors for 10 Straight Years
There’s good reason to take a look at Uniti Group stock right now.
Interest rates are heading lower over the next year or so as inflation cools and the Federal Reserve attempts to achieve a soft landing for the economy.
Lower interest rates are beneficial to sectors with high capital expenditures, as they translate into lower financing costs and support margin expansion.
Real estate investment trust (REIT) instruments will benefit from the lower carrying costs, and this could lead to higher dividends. Take the case of Uniti Group Inc (NASDAQ:UNIT).
The REIT has a high dividend yield of 10.89% and, as an added bonus, Uniti Group stock has advanced a whopping 96.8% over the last three months (up to October 3).
Uniti Group acquires and builds fiber and other wireless solutions. The company creates the critical infrastructure for moving data for the communications industry.
At the end of June, its network comprised around 142,000 fiber route miles and 8.6 million fiber strand miles, as well as other communications real estate. (Source: “Corporate Profile,” Uniti Group Inc, last accessed October 3, 2024.)
Uniti Group has been showing signs of improvement in its operations, which has been reflected in UNIT stock’s strong price appreciation over the last three months.
But despite the strong advance, Uniti Group stock remains 17.9% below its 52-week high of $6.71 in March 2024 and 62.3% off its five-year high of $14.60 in November 2021. Going back to April 2015, the stock traded as high as $34.63, so the potential is massive.
Chart courtesy of StockCharts.com
Renewed Profitability Set for 2024
Uniti Group has delivered over $1.0 billion in annual revenues since 2018. Its revenues have grown in nine straight years back to 2015, when revenues were $714.5 million. Uniti Group stock achieved its high point in 2015, but has retrenched despite the much higher revenues.
| Fiscal Year | Revenues (Billions) | Growth |
| 2019 | $1.06 | 3.9% |
| 2020 | $1.07 | 0.9% |
| 2021 | $1.10 | 3.1% |
| 2022 | $1.13 | 2.6% |
| 2023 | $1.15 | 1.9% |
(Source: “Uniti Group Inc,” MarketWatch, last accessed October 3, 2024.)
Analysts estimate that Uniti Group will report revenue growth of 1.4% to $1.17 billion in 2024, followed by a 3.2% increase to $1.2 billion in 2025. (Source: “Uniti Group Inc. (UNIT),” Yahoo! Finance, last accessed October 3, 2024.)
The consensus for 2024 is on target after the REIT hit $581.4 million in revenues in the first half of 2024.
Uniti Group has strong gross margins in excess of 80%, with the exception of a slight drop during the 2020 pandemic. The REIT delivered its highest gross margins in 2022 and 2023.
| Fiscal Year | Gross Margins |
| 2019 | 80.7% |
| 2020 | 79.1% |
| 2021 | 86.0% |
| 2022 | 86.4% |
| 2023 | 86.4% |
So, while revenues and gross margins are consistent, the problem facing Uniti Group has been its inconsistency in generally accepted accounting principles (GAAP) profitability. But there is optimism.
| Fiscal Year | GAAP-Diluted EPS | Growth |
| 2019 | $0.04 | -5.4% |
| 2020 | -$3.47 | -8,786.0% |
| 2021 | $0.51 | 114.7% |
| 2022 | -$0.04 | -107.9% |
| 2023 | -$0.35 | -777.0% |
(Source: MarketWatch, op. cit.)
Analysts expect Uniti Group to return to profitability with profits of $0.46 per diluted share in 2024, then going to $0.50 or as high as $0.65 per diluted share in 2025. (Source: Yahoo! Finance, op. cit.)
The REIT’s earnings came in at $0.16 per diluted share in the first quarter and $0.07 per diluted share in the second quarter. While the second quarter was short of the consensus $0.11 per diluted share, Uniti has beaten the consensus in three straight quarters. The third quarter is expected to see profits of $0.10 per diluted share. (Source: Yahoo! Finance, op. cit.)
The funds statement shows positive free cash flow (FCF) in six of the last nine years back to 2015. FCF was negative in 2023 due in part to the loss.
| Fiscal Year | FCF (Millions) | Growth |
| 2019 | $259.6 | 427.6% |
| 2020 | -$161.7 | -162.3% |
| 2021 | $113.3 | 170.1% |
| 2022 | $32.6 | -71.3% |
| 2023 | -$68.9 | -296.2% |
(Source: MarketWatch, op. cit.)
The major risk for Uniti Group is the $5.87 billion in total debt on the balance sheet and only $129.4 million in cash. (Source: Yahoo! Finance, op. cit.)
The REIT will need to remedy the debt situation. Uniti has covered its interest expense with higher earnings before interest and taxes (EBIT) in just one of the past four years.
| Fiscal Year | EBIT (Millions) | Interest Expense (Millions) | Interest Coverage Ratio |
| 2020 | -$237.0 | $497.1 | N/A |
| 2021 | $564.0 | $446.3 | 1.3X |
| 2022 | $341.6 | $369.4 | 0.9X |
| 2023 | $331.8 | $484.7 | 0.7X |
(Source: Yahoo! Finance, op. cit.)
The Piotroski score, an indicator of a company’s balance sheet, profitability, and operational efficiency, shows a somewhat weak reading of 4.0. This is below the midpoint of the 1.0 to 9.0 range. An improvement in debt and profitability will help to boost Uniti’s Piotroski score.
Uniti Group Stock: Dividends Could Rise on Better Profitability
Uniti Group stock’s quarterly dividend of $0.15 per share represents a forward yield of 10.87%. This has remained in place since 2020. Prior to this, Uniti paid a quarterly dividend of $0.22 per share in 2019 and $0.60 per share from 2016 to 2018.
For now, it’s about maintaining the current dividend and waiting for improved results. If this happens, I could see the REIT raising dividends.
| Metric | Value |
| Dividend Streak | 10 years |
| Dividend 7-Year CAGR | -18.0% |
| 10-Year Average Dividend Yield | 13.2% |
| Dividend Coverage Ratio | 2.3X |
The Lowdown on Uniti Group Stock
UNIT stock has strong institutional support with 408 institutions holding 86.5% of the outstanding shares. Around 31.16% of Uniti Group stock is held by BlackRock Inc (15.92% stake) and Vanguard Group Inc (15.24%). (Source: Yahoo! Finance, op. cit.)
My view is that, if the company can deliver stronger profits and FCF, Uniti Group stock could run higher and its dividends could be raised.