Telecommunications is still a solid business sector, and investors are able to find values among companies in the sector that generate share price gains while paying dividends. Let's take a few moments to review CenturyLink Inc (CTL), AT&T Inc (T), Telefonica SA (TEF), Vodafone Group Plc (VOD) and Verizon Communications Inc (VZ), 5 companies with this profit-making potential.
An integrated communications company, CenturyLink offers a wide variety of options, including voice, Internet, data, and video services throughout the United States. Trading around $37.50 per share, the stock is near the midpoint of its 52-week range of $31.16 - $45.05, and its one-year target estimate of $43.25. Add in the near-legendary CenturyLink dividend of $2.90 for its yield of 7.6%, and you have a combination that attracts a large number of investors.
While some analysts think the recent bull run on Wall Street is almost over, don't look for CenturyLink to dive anytime soon. Powered by a staggering 4th quarter revenue gain of 163%, this is an undervalued stock (notice its price to book ratio of 1.07) With low volatility (beta of 0.56) and a lithe price to earnings ratio of 14, CenturyLink Inc is in a great position to continue climbing. Anyone wanting to take a position in telecom should seriously consider this one.
Any conversation on telecom will most certainly include AT&T, much like talking about soft drinks leads to a discussion of Coca-Cola (KO). AT&T is a $178 billion giant and maintains its position as both a leader in wireless telephony and also on Wall Street. Currently trading near $30 per share, the stock is expected to test the top of its 52-week range of $27.27 - $31.94 on the strength of a projected increase of nearly 6% for the year. The company managed a quarterly revenue gain of 3.6%, has a low price to book ratio of 1.69 and a reasonable price to earnings ratio of 11.75.
While the company has been a steady investment, it has still managed to make the news, both good and bad. On the bad side, AT&T joined Verizon in placing bandwidth limits on supposedly "unlimited data" for its smartphones. This move is expected to draw the wrath of users and could slow corporate sales. On the good side, the company is expected to start offering 4G versions of the Apple iPad in March which will be an announcement that should increase sales. At the current time, AT&T is steady, if unspectacular; for investors who want to add a portfolio-stabilizing holding, that should be all the good news they need.
Spanish telecom giant Telefonica SA is another strong option among providers of voice, Internet, data, and video. Beyond its national borders, Telefonica also provides service to Europe and Latin America. Shares of the $77.5 billion company trade for just over $17 each, under the midpoint of the 52-week range of $16.53 - $27.31. The stock has a one-year target of $22 per share, and the company pays a dividend of $1.69, creating a huge dividend of 9.8%, making it a very appealing European stock for investors seeking a foreign holding.
In spite of growth in the emerging Latin American market, Telefonica seems to be somewhat undervalued. Dropping 31.4% of its share price last year, the company has a very low 7.78 forward price per earnings ratio. The concerns with the company center on its debt to equity ratio of 264 and its dividend payout ratio of an alarming 416%. The deflated share price has inflated its yield, giving it a deceptive appeal. While this is a very good company that will likely rebound, the numbers suggest it is not the right time for investors to take new positions with Telefonica SA.
With 370 million customers worldwide, UK-based Vodafone Group Plc is one of the leaders in the wireless telecommunications industry. Offering a full range of voice, data and Internet services, the $140 billion company combines growth and dividends to make it one of the better telecom stocks on Wall Street. Trading around $27 per share, the stock has a tight 52-week range of $24.31 - $29.75, a one-year target estimate of $34 and pays a dividend of $0.95, which results in a 3.5% yield.
The company has been aggressive with its growth, and is currently evaluating a bid to purchase fellow UK telecom provider Cable & Wireless. With a debt to equity ratio of 42 and a price to book value of 1.06, the stock appears undervalued, reinforcing the 25% increase implied by its one-year target. Should the company move on Cable & Wireless, it would make the company one of the larger providers in Latin America, giving it another important emerging market. I recommend Vodafone as a definite buy.
Verizon Communications is another classic portfolio-stabilizing stock. Steady growth potential and a hefty dividend keep investors coming back this $108 billion telecom heavyweight. Currently trading at $38 per share, the stock is near the top of its 52-week range of $32.28 - $40.48, a number it could challenge based on its target estimate of $40. Its stock price up over 5% during the past 12 months, Verizon pays an annual dividend of $2.00 per share, giving it a very good yield of 5.3%.
Like AT&T, Verizon attracted attention from smartphone users for scaling back its data services for users on its unlimited plans. This decision has won fans for neither company, although Verizon did manage a 7% increase in quarterly revenue growth. In spite of the slow year, this is still an excellent company and a very good stock to hole.
Ringing up Profits in Telecom
The telecommunications industry is still very promising and should be a consideration for any portfolio. At the present time, I recommend CenturyLink Inc, AT&T Inc and Verizon Communications Inc, while I suggest waiting to purchase Telefonica SA and Vodafone Group Plc.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.