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Rural
Telecoms Pay Big Dividends
With all the excitement about smart phones these days, I bet that
telephone companies that mostly provide old-fashioned landline services
aren’t on your radar screen. They’re certainly not sexy—unless, like me,
you find collecting steady six percent to nine percent dividend yields an
exciting idea.
I’m referring to phone companies that provide local and long distance
landline telephone services mostly to rural areas with low population
densities. Most also offer dial-up and broadband Internet services and
some also offer TV and wireless phone services.
Major phone companies like AT&T and Verizon view the traditional landline
business with disdain because many customers are switching entirely to
wireless phones. In fact, on average, the number of landline connections
is shrinking by around 10 percent annually. As a result, many of the big
carriers have sold their landline businesses, especially in rural areas,
to smaller operators.
Nevertheless, the outlook for these rural carriers is not as bleak as you
might think. Despite the shrinking number of landline customers, most are
replacing the lost business with revenues from new services such as
broadband Internet connections, web hosting, digital TV and corporate
communications.
For income-oriented investors, these rural telecoms offer interesting
opportunities. Their landline and newer businesses generate large and
relatively stable cash flows. But, since, their infrastructure is already
in place, they don’t have to spend much of that cash to fund expansion.
Consequently, many are paying big dividends. Here’s a rundown on the
high-dividend paying rural telecoms that I’ve found.
Alaska Communications Systems Group (ALSK)
Serves 158,000 local and long-distance landline customers, 45,500
broadband Internet customers, and 124,000 wireless customers in Alaska.
Expected dividend yield 8.3 percent.
CenturyLink (CTL)
Currently serves 6.6 million local and long-distance landline customers,
and 2.4 million broadband Internet customers in 39 states. Recently inked
a deal to offer DIRECTV satellite TV services to subscribers. CenturyLink
is in the process of acquiring Qwest Communications, which serves 17
million local and long-distance landline customers, 850,000 wireless
customers, and 1.4 million video subscribers in 37 states. Expected yield
6.9 percent.
Consolidated Communications (CNSL)
Serves 240,000 local and long-distance landline customers, 105,000
broadband Internet customers, and 28,000 digital TV subscribers in
Illinois, Pennsylvania and Texas. Expected yield 8.4 percent.
Frontier Communications (FTR)
Serves 5.9 million local and long-distance landline customers, 1.7 million
broadband Internet customers, and 516,000 digital TV subscribers in 27
states. Frontier recently tripled in size by acquiring Verizon’s landline
customers in 14 states. Expected yield 8.3 percent.
Hickory Tech (HTCO)
Serves 52,000 local and long-distance landline customers, 20,000 broadband
Internet customers, and 10,000 digital TV subscribers in Iowa and
Minnesota. Expected yield 5.9 percent.
Warwick Valley Telephone (WWVY)
Provides local and long-distance landline services, dial-up and broadband
Internet access, and digital TV services to customers in southeastern New
York and in northwestern New Jersey. Expected yield 6.5 percent.
Windstream (WIN)
Windstream serves 3.3 million local and long-distance landline customers,
1.3 million broadband Internet customers, and 433,000 digital TV
subscribers in 23 states. Expected yield 7.7 percent.
All of these firms pay quarterly dividends. The expected dividend yields
that I’ve listed assume that they will continue paying the last declared
dividend for the next four quarters. There is no guarantee, of course,
that that will happen.
Of the six phone companies listed, CenturyLink and Windstream, are
acquisition oriented, and thus have the strongest growth prospects.
Since there are only a handful of candidates, take some time to learn
about them. Yahoo’s Profile report (finance.yahoo.com)
gives you a good overview of a firm’s operations. Also, read the recent
news reports and press releases that you can find for each company on
Yahoo’s
Headlines report. As always, the more you know about your stocks, the
better your results.
published 11/21/10 |
