Telecom equities provide investors with strong cash flow due to their stable recurring business models. Commercial and residential subscribers sign up for annual or long-term contracts, providing strong revenue visibility. Despite the strong free cash flow characteristics, these large capitalization telecom stocks have underperformed dividend equities (DVY) and the broader market (SPY) through the back half of 2011 and into 2012.
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Investors who have flocked to dividend yielding equities should monitor this trend of underperformance over the next few months, to see if they should rotate out of dividend equities. As the 10-year treasury remains below 2.0%, investors have sought yield from equities. The equities below are large-capitalization U.S. equities that yield over 2.0% and trade at modest price-to-earnings ratios.
Company | Price | % Change |
AT&T, Inc. | $29.95 | -1.42% |
SPDR S&P 500 ETF | $134.54 | 5.53% |
Verizon Communications | $37.84 | -4.76% |
Vodafone Group plc | $1.75 | -3.13% |
iShares Dow Jones Dividend Index | $54.89 | 1.87% |
AT&T, Inc. (T)
Market Capitalization: $177.1 billion
Price to Earnings: 45.1x
Dividend Yield: 5.9%
Verizon Communications (VZ)
Market Capitalization: $107.1 billion
Price to Earnings: 44.5x
Dividend Yield: 5.3%
Vodafone Group (VOD)
Market Capitalization: $87.5 billion (GBP)
Price to Earnings: 12.8x
Dividend Yield: 5.2%
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Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
