An 8.4% Yield From Charter? Buy Liberty Broadband Preferred Stock

How to get a dividend from Charter

Few investors know that they can actually reap a dividend from Charter (CHTR), although not in a standard, straightforward manner.

Charter’s largest shareholder, Liberty Broadband (LBRDK) (LBRDA) (OTCQB:LBRDB) has a small amount of Preferred stock outstanding (NASDAQ:LBRDP), with par value of $25 and an annual yield on par of 7%. Since the Preferred is trading for $22.01 after the Charter sell-off (which I believe has different reasons from those usually referenced), the actual yield to maturity is 8.4%. The date of mandatory redemption will be 15 years from now on March 8, 2039.

You can read all the details in the issuance prospectus of Liberty Broadband Preferred Stock. (The prospectus is issued by the predecessor company GCI Liberty, which was acquired by Liberty Broadband in 2021.)

The total amount issued is just $180m, so there is little trading volume, which means that the Preferred stock price sometimes overreacts to news related to Charter and Liberty Broadband, providing nice entry (or disposal) opportunities.

You can find a lot more basic information in this excellent article on Liberty Broadband Preferred stock.

One of the safest telecom dividends out there

Given that Liberty Broadband owns 26% of Charter (and not much else), has a net asset value, net of its little corporate debt, of about $14B, and can sell some Charter shares anytime to finance the dividend and the relatively small amount needed for redemption, the risk of a dividend cut or total loss is exceptionally low.

Moreover, there is a nice feature built into this issuance: If the dividend was ever suspended or not paid in full for any four consecutive or non-consecutive quarters, the dividend yield would increase by 2% until cured. I.e., from the moment of such a breach onwards the Preferred stock will not pay $1.75 annually, but $2.25.

The mandatory redemption, the very low business risk, Liberty Broadband ultra-solid balance sheet and the 2% penalty make this dividend one of the safest telecom dividends available.

A short-term trade might play out beautifully

The Preferred could be a nice portfolio addition not only for long-term dividend investors, but also for a quick trade, since it fell 3% as Charter crashed on its disappointing Q4/23 results. Yet its risk and yield profile has not changed at all.

Moreover, if the Fed really cuts interest rates later in the year, bond yields should come down, which should lead to price increases of the Preferred as well.

Therefore, if you like the safe 8.4% yield and would not mind holding the Preferred stock for the long-term, you can initiate a position and are likely to see a price increase in the near term: First, because of a more rational market (which should bring the Preferred stock at least back to its recent price level just below $23), and second, because of a very likely lower interest level in the near term, which increases the prices of fixed-income securities. You may then cash out for a quick profit or decide to hold for the very safe 8.4% yield.

Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.