Telcos: Dialing for Dividends

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 |  Includes: AMX, CHL, DCM, DTEGY, IXP, IYZ, ORAN, T, TEF, TTH, VOD, VOX, VZ, XLU
by: Mike Havrilla

Although not completely immune from the current global economic slowdown, many telecom services companies are currently yielding higher amounts than tobacco companies and the Utilities Select Sector SPDR (NYSEARCA:XLU). Although many of the foreign telecom companies included in the ETFI Global Telco Services Dividend Income Index issued special one-time dividends over the past year which inflates their trailing 12-month yield; both Verizon (NYSE:VZ) and AT&T (NYSE:T) are currently yielding over 6% each while trading at multi-year lows.

In contrast to many of the existing telecom ETFs (the four listed below are all down by more than 40% in the last year) which have large positions in Verizon and AT&T, the ETFI Global Telco Dividend Index is structured as an equally-weighted, all-world index among the top 40 rated companies, which are rebalanced each quarter.

- Telecom HOLDRs (NYSEARCA:TTH) has over three-fourths invested in T + VZ with $158M in net assets
- iShares Dow Jones U.S. Telecom (NYSEARCA:IYZ) has over one-third invested in T + VZ with $469M in net assets
- Vanguard Telecom Services (NYSEARCA:VOX) has over one-third invested in T + VZ with $107M in net assets
- iShares S&P Global Telecom (NYSEARCA:IXP) has nearly one-fourth invested in T + VZ with $227M in net assets

A total of 72 companies are eligible for the ETFI Global Telco Services Dividend Income Index, which includes companies with market caps over $1B [USD] and dividend yields of at least 2.5% that derive the majority of their revenues from telecom services.

As shown in the accompanying table, the performance of the top 40 rated and all 72 companies which pay above average dividends is better than existing benchmark telecom services ETFs, which tend to be heavily weighted in AT&T and Verizon.