Today I would like to talk about one of my favorite industries: telecoms. With their large dividends and predictable activity of increasing their payouts telecommunications companies look to be a very profitable area for an investor looking for steady income payments. I picked five of the largest players in the industry and have focused on some of their more important fundamentals.
Some key factors I am considering:
Debt to Equity: The debt-to-equity ratio is a leverage ratio indicating the relative proportion of shareholders' equity and debt used to finance a company's assets. It reveals how a company has financed its assets. A low debt-to-equity ratio indicates lower risk because shareholders have claims on a larger portion of the company's assets. I normally look for a number below 60%.
Dividend Yield: The dividend yield is the sum of a company's annual dividends per share divided by the current price per share. I am looking for companies that are yielding above 3.50%.
FCF Payout Ratio: This ratio is the company’s current dividend per share (ttm) divided by its free cash flow per share. It gives the investor a clearer picture of the company’s ability to cover its dividend than the more traditional payout ratio. This is because free cash flow is a much harder metric for a company to manipulate, as opposed to net income. I look for a ratio in the neighborhood of 70% or lower.
Price to Owner's Earnings: This ratio looks at the relationship between the share price of the company and the free cash flow per share. I normally look for a multiple somewhere below 17.
Consecutive Years Increasing Dividends: One of the best ways to see how strong a dividend that a company has is to look at how consistently they issue and increase their payouts.
Five Year Average Annual Growth Rate: This is the average speed at which the dividend has grown during the previous five years. It helps us get an idea about how important the dividend is in the eyes of the company’s management.
Here are the companies that I chose:
Overview: AT&T together with its subsidiaries, provides telecommunication services to consumers, businesses and other service providers worldwide. Its wireless segment offers wireless voice communication services, including local wireless communications service, long-distance service and roaming services. This segment also sells various handsets, wirelessly enabled computers and personal computer wireless data cards, and accessories comprising carrying cases, hands-free devices, batteries, battery chargers and, other items.
· Yield = 5.80%
- FCF per Share = 1.314
- FCF Payout Ratio = 131%
- Years Increasing Dividends = 27
- Price-to-Owner's Earnings = 22.19
- 5-Year Average Annual Growth Rate = 5.4%
- Debt-to-Equity Ratio = 62.54
Overview: Verizon Communications Inc. provides communication services. The company operates through two segments, domestic wireless and wireline. The domestic wireless segment offers wireless voice and data services; and sells equipment in the United States. The wireline segment provides voice, Internet access, broadband video and data, Internet, network access, long distance, and other services in the United States and internationally.
· Yield = 5.50%
- FCF per Share = 5.00
- FCF Payout Ratio = 40%
- Years Increasing Dividends = 7
- Price-to-Owner's Earnings = 7.438
- 5-Year Average Annual Growth Rate = 3.62%
- Debt-to-Equity Ratio = 62.75
Overview: CenturyLink, Inc., together with its subsidiaries, operates as an integrated communications company. The company provides a range of communications services, including voice, Internet, data, and video services in the continental United States. Its services include local exchange and long distance voice telephone services, as well as enhanced voice services, such as call forwarding, caller identification, conference calling, voice mail, selective call ringing, and call waiting; wholesale local network access services; and data services, including high-speed Internet access services, data transmission services over special circuits and private lines, and switched digital television services, as well as special access and private line services.
· Yield = 7.90%
- FCF per Share = 4.555
- FCF Payout Ratio = 63.6%
- Years Increasing Dividends = 37
- Price-to-Owner's Earnings = 7.953
- 5-Year Average Annual Growth Rate = 64.6%
Debt-to-Equity Ratio = 98.63
Overview: Vodafone Group Public Limited Company provides mobile telecommunication services worldwide. It offers mobile voice services to approximately 370 million customers; messaging services; mobile data services; fixed broadband services to approximately 6 million customers; and whole sale carrier services to approximately 40 African countries. The company also provides business managed services, such as secure remote network access services, as well as operates and sells mobile virtual network access.
· Yield = 6.90%
- FCF per Share = .4612
- FCF Payout Ratio = 4.183%
- Years Increasing Dividends = dividata.com/stock/VOD/dividend
- Price-to-Owner's Earnings = 60.54
- 5-Year Average Annual Growth Rate
- Debt-to-Equity Ratio = 43.72
Overview: Sprint Nextel Corporation, through its subsidiaries, offers wireless and wireline communications products and services to individual consumers, businesses, government subscribers and resellers in the United States, Puerto Rico and the U.S. Virgin Islands. The company's Wireless segment provides data transmission services, including mobile productivity applications, such as Internet access, messaging and email services; wireless photo and video offerings; location-based capabilities comprising asset and fleet management, dispatch services, and navigation tools; and mobile entertainment applications; and local and long distance wireless voice services, voice mail, call waiting, three-way calling, caller identification, directory assistance, and call forwarding services.
· Yield = N/A
- FCF per Share = .4066
- FCF Payout Ratio = N/A
- Years Increasing Dividends = N/A
- Price-to-Owner's Earnings = 7.068
- 5-Year Average Annual Growth Rate = N/A
- Debt-to-Equity Ratio = 139.08
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.