When looking for solid, dividend-paying stocks to help augment a weakened income stream, avoiding the high buzz in favor of some good old-fashioned solid businesses can be a smart move. Lisa Springer from Street Authority looks into three high-yielding telecoms companies founded decades ago to provide local and long-distance landline telephone services to rural communities.
While the number of landline connections is contracting roughly 10% a year, but these companies are offsetting eroding landline revenue with revenue from new services such as broadband Internet, digital TV and web hosting. These rural telecoms can offer rich income opportunities because of stable cash flow and modest spending.
Her three of my favorite high-yielding telecoms:
1. Consolidated Communications Holdings (CNSL), Yield: 8% with about 230,000 local and long-distance landline customers, 110,000 broadband Internet customers and 33,000 digital TV subscribers.
2. Hickory Tech Corp. (HTCO), Yield: 5% with about 49,000 local and long-distance landline customers, 20,000 broadband Internet customers and 11,000 digital TV subscribers.
3. Warwick Valley Telephone Co. (WWVY), Yield: 8%
Warwick provides telecom services in the Hudson Valley between New York and New Jersey and have approximately 100 people. Warwick has a 104-year history of dividend payments, and payments have increased by a total of 30% in the past four years. The last increase was 8% March 2011, to a $1.04 annual dividend rate.
The reason that I want to investigate these stocks further are:
- Telephone landlines for phone calls and home internet are going to be around for a long time and don't see significant price erosion and there are add-on sales.
- These are stable businesses which means that well run companies should be able to maintain a firm grip on expenses and continue to produce solid dividends.
- These companies face competition from cable and satellite companies but their overheads and costs continue to make their businesses appealing.
This is a small selection in one sector so we have a double problem of a small number in a single market, so there will be volatility, but it's worth measuring to see whether these are companies to consider adding to a long-term portfolio. We will compare it with our broadly diversified, dividend-bearing ETF portfolio.
|Asset||Fund in this portfolio|
|REAL ESTATE||(ICF) iShares Cohen & Steers Realty Majors|
|FIXED INCOME||(TIP) iShares Barclays TIPS Bond|
|Emerging Market||(VWO) Vanguard Emerging Markets Stock ETF|
|US EQUITY||(DVY) iShares Dow Jones Select Dividend Index|
|US EQUITY||(VIG) Vanguard Dividend Appreciation ETF|
|INTERNATIONAL EQUITY||(IDV) iShares Dow Jones Intl Select Div Idx|
|High Yield Bond||(HYG) iShares iBoxx $ High Yield Corporate Bd|
|INTERNATIONAL BONDS||(EMB) iShares JPMorgan USD Emerg Markets Bond|
- 3 Old-Fashioned Telecom Companies With Good Yields -- Total of $10K invested equally in each stock
- Retirement Income ETFs Tactical Asset Allocation Moderate -- Above funds using TAA (40% fixed income, 30% for each of the top two asset classes)
- Retirement Income ETFs Strategic Asset Allocation Moderate -- Above funds using SAA (40% fixed income, 12% for each of the five asset classes -- funds selected based on price momentum)
Portfolio Performance Comparison
|1Yr AR||1Yr Sharpe||3Yr AR||3Yr Sharpe||5Yr AR||5Yr Sharpe|
|Retirement Income ETFs Tactical Asset Allocation Moderate||1%||1%||0%||10%||76%||8%||59%|
|3 Old-Fashioned Telecom Companies With Good Yields||3%||17%||71%||36%||157%||10%||34%|
|Retirement Income ETFs Strategic Asset Allocation Moderate||5%||3%||12%||18%||138%||3%||11%|
We have previously reviewed three companies in the IT market segment and we saw cyclical behavior which is repeated here but to a much lesser degree. I think this is a very interesting, under the RADAR set of stocks that could be a good way to maintain a good income stream into the future.
Three Month Chart One Year Chart Three Year Chart Five Year Chart
It is noticeable how badly these stocks suffered in the recent downturn, but that is the problem of not having diversity. However, they have recovered nicely and continue to look good.
This is something I will certainly consider as a dividend producer and if there is consolidation, there is potential upside on the value of the stock
Disclaimer: MyPlanIQ does not have any business relationship with the company or companies mentioned in this article. It does not set up their retirement plans. The performance data of portfolios mentioned above are obtained through historical simulation and are hypothetical.