Should You Be Considering These 5 High Dividend Telecom Stocks Now?

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 |  Includes: ALSK, CNSL, CTL, FTR, WIN
by: Trader 24821

I recently described here some high value names experiencing insider buying. Moreover, I mentioned some wireless names here that look enticing as today's valuations. Now, looking into the Telecommunication ("Telecom") stocks show that they have some sizeable yields and values worth looking into as the chart above shows.

Of course, one must always dig deeper since there has to be a reason that people have been dumping a stock as you have to assume they would like a nice yield as well (While the market at times is definitely inefficient and where the true investors look to make buys, the majority of the time it is efficient and so it's best for us to wait for the fat pitch right down the middle of the plate and swing at those).

For example, the top dividend payer here, ALSK, looks really enticing with a 13.5% yield. However, they just reported negative FCF this month and have lost approximately $5M in net income over the last year, which seriously jeopardizes their ability to keep paying this high dividend going forward. Add in the fact that Verizon (NYSE:VZ) is looking to move into Alaska and that creates some serious competition for ALSK in an area which they have historically been the only player in town for the most part.

FTR on the other hand looks very interesting as they have a geographically diverse stream of revenues all over America post the big acquisition of Verizon (VZ) assets in July 2010 of approximately 4 million access lines among other things. It's been just over a year now and the acquisition is going much better than expected with FTR expecting a full $100 million more in synergies than initially expected. So, while the FCF payout ratio is rather high at ~80%, I'm pretty confident here as I see expected cost savings which will help bring down that down and possibly even raise dividends in the near future if management keeps up the great work. At just 1.1x P/S, 1.2x P/B, and secure 12.6% dividend yield, I feel FTR is a great buy.

CTL on the other hand looks to have too high of a dividend that pays approximately $1.75B annually, but only brought in approximately $1.1B in FCF this past year. The stock has some cheap valuations at 1x P/B, but that high dividend payout against their FCF causes me to worry enough to hold off at least for now and look at FTR instead.

WIN had approximately $700M in FCF this past year against approximately 510M shares outstanding meaning a secure approximate 75% FCF payout ratio. The company has paid the current dividend for almost five years and trades at a reasonable 1.5x P/S and forward P/E of 14x. I think this is an appropriate stock to diversity with FTR.

CNSL had approximately $75M in FCF this past year against approximately $47M in dividend payments giving them a very secure 62% FCF payout ratio. Along with its very nice 8.6% yield which the company has consistently paid for almost six years, the stock trades at 1.4x P/E, 17x P/E, and great return on equity in excess of 46%. This stock is a nice buy at these levels.

Disclosure: I am long FTR.