7 Telcos For Dividend Investors To Consider

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Includes: CNSL, FTR, SPKKY, T, TEF, VOD, VZ
by: Mark Bern, CFA

By Mark Bern, CPA CFA

I own two of the these companies and I think that each investor needs to assess the list and do some further digging, but for dividend investors I believe one or more should be a part of the core portfolio. We each need to determine which one(s) best suit our needs. I am sure we will hear both pros and cons from other readers on the individual companies listed below so don’t forget to read the comments, and by all means contribute your own insight.

Company Name

Symbol

Current Price

Current Yield

TTM Total Return

Est. Tot. Annual Ret. L/T

AT&T

T

$29.03

5.9%

6.45%

11%

Verizon

VZ

$38.43

5.2%

18.6%

13%

Telefonica SA

TEF

$18.47

9.1%

-11.54%

27%

Frontier Comm.

FTR

$5.16

13.0%

-38.8%

11%

Vodafone

VOD

$27.28

7.3%

11.48%

12%

New Zealand Tel

NZT

$8.08

9.7%

11.45%

10%

Consolidated

CNSL

$18.56

8.3%

9.1%

9%

Click to enlarge

*TTM stands for Trailing Twelve Months; Est. Tot. Annual Ret. L/T is abbreviation for Estimated Total Annual Return over the Long Term

AT&T (NYSE:T) is a stalwart of any list that focuses on dividends. The company has been around, in one form or another, since the 1800s and is likely to be around long after we’re all gone. The company is going to pay some penalties for the T-Mobile acquisition failure ($3 Billion), but the dividend is most likely safe since the company has over $3 Billion in cash and $34 Billion in annual cash flow, but it still hurts. I expect T to continue to raise its dividend and grow earnings at a mid-single digit pace for the next few years. But a dividend of 5.9 percent from a stable long-term, slow grower like this is tempting. For readers wanting a bit more detail from a focus article, one can be found at this link.

Verizon (NYSE:VZ) should grow at a pace similar to T and currently offers a dividend yield of 5.2 percent. The company has some initiatives under way to enhance revenue going forward and there are few companies that offer greater safety. This is a top quality company that has staying power and potential for slow growth. Income-oriented investors who need current income and want to keep up with inflation may want to consider these shares. A more detailed discussion VZ can be found at this link:

Telefonica SA (NYSE:TEF) may be headquartered in Spain, but its operations are more diverse. Its key region for growth is Latin America, where revenue and earnings are growing by enough to more than offset declines in the stagnant European market. That has not protected the stock from the negative perceptions that continue to swirl around the eurozone. Those perceptions may cause the stock to drop further over the next 12 months providing investors with an even better entry point. Eventually, the stock price will reflect the growth in earnings. The current dividend yield is 8.9% and is likely to rise somewhat faster than its peers.

Frontier Communications (NYSE:FTR) pays a mighty fine dividend at 13 percent, but I wouldn’t look for much appreciation, if any. The company has brought the long-term debt ratio down from over 90 percent to about 61.5 percent over the last few years but it is not really investing in growth. The company offers voice, data, high-speed internet and satellite in 27 states. Dividends paid equal more than net income so the company is using cash flow to pay dividends. It has very competent management, which is focused on cost controls. The company has done a commendable job integrating the 2010 acquisition of underutilized Verizon landline assets. It continues to squeeze greater cost savings through synergies like consolidating backroom operations. The perception in the marketplace was that the acquisition of Verizon assets was a bad move and the stock has tumbled as a result. This may give investors an opportunity to buy the company on the cheap. The dividend is far more appealing than Treasuries and the potential for loss may also be less as Treasuries could get hit when interest rates eventually rise. This one is for investors looking for current yield. This one is not for the faint of heart.

Vodafone (NASDAQ:VOD) pays a handsome dividend of $2.00, which at the current price of $27.28 yields 7.3 percent. The company provides some diversification not offered by most of the others on this list with operations in Germany, Spain, Italy, U.K., Australia, New Zealand, Africa, and the Middle East. It also owns a 45 percent stake in Verizon. Again, this company is likely to be a relatively slow grower with both dividends and earnings growth averaging about 4 percent. But that dividend is appealing for income investors looking for current income and a little growth for inflation.

New Zealand Telecom (NZT) provides an interesting dividend. I got different quotes from every source I checked but went with the information from the company’s web site and came up with 9.7 percent at the current price of $8.08. NZT isn’t a world dominator, but it has an entrenched position, a great dividend, and some potential growth. If readers would like to read more about NZT I have provided a link to a focus article here.

Consolidated Communications (NASDAQ:CNSL) pays a dividend of $1.55 for a yield of 8.3 percent at the current price of $18.56. The company offers landline communications services, dial-up and high-speed internet access, digital TV and network capacity services over its regional fiber optic network, and directory publishing in Illinois, Pennsylvania, and Texas. The company is likely to continue to pay the same $1.55 dividend for the foreseeable future. This is not a stock with much appreciation value but the dividend appears to be safe. For an income investor the 8.3 percent yield may be more attractive than a yield under 6 percent with appreciation. It will take about seven or eight years for the 6-percenter’s yield to reach the same level.

Disclosure: I am long T, VOD.