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For many years, income investors have gravitated toward telecom stocks because of their generous dividend yields. Indeed, the average yield of stocks in the telecom space is normally well above the Value Line median.

To create our list, we ran a simple screen of stocks in the Telecom Utility, Telecom Services, and Telecom Equipment industries, and ranked them by dividend yield, from highest to lowest. Our only other criteria were that all issues trade above $5.00 a share.

Although these three industries sound very similar to one another, there are stark differences between them, and even between individual stocks in each group. Operators in the Telecom Utility Industry are generally regulated, and generate most of their revenue by providing customers with traditional fixed-line voice service. However, this legacy business is steadily shrinking, and many of these utilities are looking to expand their services to include wireless communications, high-speed Internet, and television. Stocks in this group typically offer the highest yields of the three industries under review, and many have substantial overseas operations.

The Telecom Services group includes several integrated telcos, which provide wireline, wireless, and other non traditional services. Companies in this industry may have traditional wired operations, but most rely heavily (or solely) on wireless service for their revenues. Yields in this group are normally attractive, though not as high as those in the Telecom Utility space.

Companies in the Telecommunications Equipment Industry produce technologies and services that are used to facilitate people's communications. Major products include cell phones, chipsets, wireless and landline infrastructure equipment, digital subscriber-line (DSL) and cable modems, and networking devices, such as routers and switches. The industry's customer base is highly diversified, including multi-national corporations, telephone companies, governments, universities, institutions, commercial businesses and consumers. Stocks in this group normally have lower dividend yields than their Telecom Utility and Telecom Services brethren.

In this screen, we highlight two companies, BT Group ADR (BT), and BCE Inc. (BCE), that rose to the top of our list. Subscribers can view all the dividend payers in the telecom space on the list below.

BT Group ADR

BT Group is the principal supplier of telecommunication services in the United Kingdom, boasting more than 15 million clients (comprised of businesses and residential customers). Products include traditional telephony, broadband, networked IT services, and conferencing. More than 88% of the company’s revenues are generated by units in the United Kingdom, with the remainder derived from other parts of Europe, Africa, the Middle East, and the Americas.

Operating results have been mixed of late. On the positive side, profits are being boosted by aggressive cost reduction initiatives and a lower effective income tax rate. Unfortunately, revenues remain under pressure, given the challenging economic environment in Europe and tough conditions in the financial services sector. An unfavorable regulatory ruling has not helped, either.

Meanwhile, the company is making progress in building up some areas of the business that figure to be key to its long-term prospects. To that end, it continues the rollout of fibre broadband, which currently reaches more than 13 million premises. What’s more, the BT Sport operation has been acquiring additional content, recently establishing an agreement to acquire ESPN’s Ireland and U.K. channels. Notably, the company already has a deal to broadcast some Premier League soccer games beginning this summer.

The dividend continues to rise at a steady, supported by decent cash flows. The current dividend yield is 3.65%. What’s more, our 3- to 5-year projections indicate that additional, healthy hikes in the distribution are likely to take place. The payout ratio over that time frame should be in the 55% range, which is quite reasonable.


BCE Inc.

BCE Inc. is Canada’s largest telecommunications company, with the Bell and Bell Aliant brands providing a range of wireless and wireline services to residential and business customers. Bell Media is a premier multimedia operation with assets in television, radio, and digital media (including CTV, Canada’s #1 television network). The company’s total subscribers amount to more than 21 million, with management placing greater emphasis on the wireless segment, given its better long-term growth prospects. 

Over the past year, there has been some activity on the acquisition front. In fact, the company purchased Q9 Networks, Canada’s leading provider of outsourced data centre solutions (such as hosting, co-location and cloud computing services) for organizations with mission-critical IT operations. Moreover, it bought an ownership stake in Maple Leaf Sports & Entertainment, which owns such prized organizations as the Toronto Maple Leafs (National Hockey League) and the Toronto Raptors (National Basketball Association), plus three digital channels (including Leafs TV and GOLTV Canada). At this time, BCE is seeking to acquire Astral Media, Quebec’s leading media company, whose broad portfolio includes top-tier TV, radio, digital and out-of-home properties. We anticipate additional purchases of niche businesses going forward.

Since the fourth quarter of 2008, the stock’s dividend has been raised nine times, or 60% overall, made possible by BCE’s significantly improved earnings following the last financial crisis, which gripped much of the world. Further, steady increases in the payout seem likely to occur over the 2016-2018 period, as well. At present, the stock has an impressive dividend yield of 4.93%, well above the industry average.

     

 Company

Ticker

Industry Name

Dividend Yield

Windstream Corp.

WIN

Telecom. Utility

12.2

NTELOS Hldgs.

NTLS

Telecom. Services

11.04

Frontier Communic.

FTR

Telecom. Utility

9.69

Consol. Communic.

CNSL

Telecom. Utility

8.71

Deutsche Telekom ADR

DTEGY

Telecom. Utility

7.4

Telecom N. Zealand

NZTCY

Telecom. Services

6.68

CenturyLink Inc.

CTL

Telecom. Utility

5.8

Vodafone Group ADR

VOD

Telecom. Services

5.43

BCE Inc.

BCE

Telecom. Utility

4.93

AT&T Inc.

T

Telecom. Services

4.85

Comtech Telecom.

CMTL

Telecom. Equipment

4.42

Verizon Communic.

VZ

Telecom. Services

3.91

BT Group ADR

BT

Telecom. Utility

3.65

TELUS Corporation

T.TO

Telecom. Services

3.61

Ericsson ADR

ERIC

Telecom. Equipment

3.37

Telefonica SA ADR

TEF

Telecom. Utility

3.34

Cisco Systems

CSCO

Telecom. Equipment

3.27

j2 Global

JCOM

Telecom. Services

2.51

Telephone & Data

TDS

Telecom. Services

2.26

Marvell Technology

MRVL

Telecom. Equipment

2.22

Atlantic Tele-Network

ATNI

Telecom. Services

2.09

Shenandoah Telecom.

SHEN

Telecom. Services

1.93

Motorola Solutions

MSI

Telecom. Equipment

1.83

ADTRAN, Inc.

ADTN

Telecom. Equipment

1.72

Qualcomm Inc.

QCOM

Telecom. Equipment

1.64

Black Box

BBOX

Telecom. Equipment

1.54

America Movil

AMX

Telecom. Services

1.41

Broadcom Corp. 'A'

BRCM

Telecom. Equipment

1.21

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.