Instead of searching for hidden gems, the managers of AdvisorShares' short-only Ranger Equity Bear fund spend their days scouring the stock market for sinking ships.
Brad Lamensdorf and John Del Vecchio, co-managers of the exchange-traded fund, have targeted four companies they believe will cut dividends because of cash-flow problems, making them less attractive to investors:
-- Windstream Holdings Inc., a Little Rock, Ark., telecommunications company. Its stock is up 4% this year. "Free cash flow barely covers dividend. ... In the first half of 2013 there was a $40 million shortfall. ... Company has a $400 million underfunded pension."
Windstream spokesman David Avery noted: "On Oct. 15, we paid our 29th consecutive 25-cent quarterly dividend." The company also boasts in an investment brochure: "Our business model supports our $1 annual dividend payment through consistent cash generation and the improving trajectory of our financial performance."
Matt Smith, treasurer and vice president of finance for Consolidated Communications, said: "We build cash on the balance sheet to use in ... acquisition[s] that also improve the balance sheet. The SureWest acquisition met this criteria, so we did use a significant portion of our cash on the balance sheet for the acquisition. Now that most of the non-recurring costs tied to the acquisition are behind us, consistent with past practice, we will begin to build cash on the balance sheet again for the next opportunity."
CenturyLink declined to comment and Diebold did not respond to a request for comment.
As far as investments go, this hasn't been a good year for Ranger Equity Bear Fund. The fund has lost 22% this year as the stock market surged, while the broad Standard & Poor's 500 index up 23%."