In many cases, Telecom stocks can be a great way to catch a wave of increasing dividends. They have also become a great place to find uncharacteristically high yields. Many investors, well aware of the yields that AT&T (T) and Verizon (VZ) are offering, have been piling into these stocks, increasing the price and lowering the yield for new investors. However, below are a few telecom stocks not yet on the radar of many investors which may offer an overlooked opportunity.eep in mind these are small players and are not geographically diverse.
Consolidated Communications Holdings, Inc. (CNSL) provides communications services to both residential and commercial customers in Illinois, Texas and Pennsylvania. These services include local and long distance telephone, high-speed internet, Digital TV and other complementary services.
The company’s revenues have been on the decline so far in 2010 primarily due to fewer local access lines in service. For the six months ended June 30, 2010 revenue was $194 million compared to $203.8 million for the same period in 2009. However, due to lower operating expenses net income was up for the six month period and only decreased slightly for the quarter ended June 30, 2010. The company is attempting to offset this decline by adding subscribers to its DSL, IPTV and other services all of which saw increases for the most recent period.
The company currently pays a dividend yield of 8.10% and has a payout ratio of 70.6% of cash available to pay dividends. The dividend appears safe for now and the company seems to be replacing some of the revenue lost by the inevitable decline of the local access line service.
Alaska Communications Systems Group, Inc. (ALSK) is a provider of communication services in the State of Alaska to both residential and commercial customers. The company’s major services include local and long distance telephone, data, broadband, wireless voice and data services as well as other related products and services.
As with many telecom providers, the drop in local access lines have hurt revenue in the first half of 2010. Revenue for the first six months ended June 30, 2010 was down 2.7% to $167 million. Income before an additional income tax charge for the effects of an ongoing IRS audit, saw a 3.8% increase to $6 million. The company is devoting more resources to higher growth markets such as wireless and wire line broadband in order to offset the decline in local access lines
The company currently pays a dividend yield of 8.80% and is comfortably below the 70-75% target payout ratio set by the company.
HickoryTech Corporation (HTCO) provides communication services to residential and commercial customers in Minnesota, Iowa and to a lesser extent, communities in North Dakota, South Dakota and Wisconsin. The company’s major services include local and long distance telephone, high-speed internet, digital TV, networking services. A subsidiary, HickoryTech Information Solutions provides billing and customer management systems for itself and other telecom companies. Another subsidiary, Enventis, provides integrated unified communications solutions for all sizes of commercial users.
Unlike many other regional players in the telecom business, the Company saw both revenues and net income surge in the first half of 2010. Revenues were up 18% to $77 million while net income rose 31.9% to $5 million. The company continues to upgrade and extend its fiber network and the Enventis subsidiary continues to contribute handsomely to top line revenue growth.
The company pays a dividend yield of 5.85% and has a payout ratio to net income of roughly 70%. The company increased it net income target so this should secure the dividend in the near-term.
Warwick Valley Telephone Company (WWVY) provides communication services to residential and commercial rural customers primarily in the Hudson Valley area of New York and northern New Jersey. The company’s primary area of operation are local and long distance telephone, network access, high-speed internet, DirectTV as well as other complementary telecom and online services.
Revenues for the first half of 2010 were up just slightly while net income dropped 36%. Telephone services still provide most of the revenue, but the company’s operating businesses have been running losses for the last several years. Most of the cash and net income comes from the company’s 8.108% equity interest in Orange County-Poughkeepsie L.P (O-P). The partnership provides cellular services and is majority owned by Verizon Wireless of the East L.P. The company also acquired US Datanet, which has increased expenses, causing net income to drop.
The company pays a dividend yield of 6.80% and if depreciation expense is backed out of the net income number, the dividend is covered. The company has been paying a dividend since 1907 and I would expect this to continue. The company is conservatively run and they continue to bring expenses under control. In the meantime, the O-P partnership should supply sufficient cash to cover.
New ULM Telecom, Inc. (OTCQB:NULM) provides communication services primarily to residential and commercial customers in southern Minnesota and northern Iowa. The company primarily provides local and long distance telephone, digital TV, high-speed internet as well as computer sales and service.
The company saw revenues for the first half of 2010 drop 7.5% and net income declined 20.7%. The company again has suffered due to a drop in local access lines in service. However the company has made some acquisitions including a recent acquisition of cable television assets.
The company pays a dividend yield of 6.40%, which equates to a payout ratio to net income of 100% for the first half of 2010. The company does manage its dividend and actually decreased the quarterly payout in 2010 from $0.10 per share to $0.08 per share. Therefore, there is some risk to the dividend if revenues and net income do not get back on track.
Disclosure: No positions