|
High-Dividend Wireless
Stocks
More and more, users of sophisticated smart
phones, and now, Apple’s new iPad, are continuously accessing the
Internet. By all accounts, this trend will accelerate, triggering a
surge in wireless data transmission volumes.
The wireless carriers are starting to
charge customers for using increased bandwidth. This means that wireless
carriers are likely to experience higher than expected revenue and
earnings growth, and thus higher share prices, as the trend accelerates.
Fortunately, many wireless telecom
operators pay significant dividends. Thus, investors can enjoy steady
income, plus potential stock price appreciation, should my thesis come
to pass.
Initial Evaluation
Here are six ideas for doing that. Along with each stock’s
description and dividend yield (next 12-month’s dividends divided by
share price), I’ve included two factors that I view as important when
evaluating dividend stocks.
First, what is the percentage of a firm’s
annual operating cash flow (cash generated by its basic business) that
was required to fund the dividends? Obviously, higher the percentage,
the more likely a dividend cut in a business slowdown.
Second is the firm’s profitability, as
measured by return on assets (net income divided by total assets). It
doesn’t matter whether you are evaluating growth stocks, value plays, or
dividend stocks, you’ll always do better by sticking with higher
profitability candidates.
You can find the last fiscal year’s
operating cash flow (total cash flow from operating activities) and
dividends paid on Yahoo Finance (finance.yahoo.com).
Get a price
quote and then select
Cash Flow in the Financials section. Yahoo’s
Key
Statistics report shows the return on assets (Management
Effectiveness section).
Six Wireless Ideas
AT&T (T)
AT&T, the U.S.’ largest landline carrier, owns wireless carrier AT&T
Mobility (formerly Cingular), with 87 million subscribers, which is the
second largest wireless carrier. Currently, AT&T is the exclusive U.S.
carrier for the Apple iPhone and iPad. On the downside, some analysts
expect AT&T to eventually lose its monopoly on the iPhone and possibly
on the iPad. Should that happen, AT&T’s share price would probably take
a hit. AT&T pays dividends equating to a 6.8% yield. Last year, AT&T
used 28% of its operating cash flow to fund its dividends. Its return on
assets ratio (profitability) was a moderate 5.1%.
Verizon Communications (VZ)
Verizon, the U.S.’ number two landline carrier, owns 55% of Verizon
Wireless (Vodaphone, based in Britain, owns 45%), which with 93 million
customers, is the largest wireless carrier in the U.S. Verizon will be
the major beneficiary when and if AT&T does lose it exclusivity on
Apple’s hot products. Verizon pays a 6.9% dividend yield. Last year, it
used 17% of its operating cash flow, the lowest of the group, to fund
the dividend. Its return on assets ratio, similar to AT&T, is a moderate
5.3%.
NTELOS Holdings (NTLS)
NTELOS is a small rural telephone company mainly serving customers in
only two states, Virginia and West Virginia. It serves around 440,000
wireless customers and wireless services account for most of its
revenues. NTELOS has an exclusive agreement with Sprint Nextel to
provide wholesale wireless services in its territory. NTELOS pays a 6.2%
dividend yield, which used up 25% of its operating cash flow last year.
Its return on assets ratio is a healthy 8.7%.
BCE (BCE)
BCE owns Bell Canada, which serves customers in Ontario and Quebec and
is Canada’s largest telephone company. Its wireless unit, Bell Mobility,
serves almost seven million subscribers. BCE is paying a 5.4% dividend
yield, which used up 34% of its operating cash flow last year. Its
return on assets is a moderately strong 6.0%.
Alaska Communications (ALSK)
Alaska Communications Systems Group offers wireline and wireless
communications services to customers throughout the state. It serves
around 137,000 wireless customers and is the state’s second largest
carrier (AT&T is the largest). Alaska is paying a high 10.0% dividend
yield, but used up 39% of its cash flow last year to fund it. Alaska’s
return on assets was a weak 3.2%, the lowest of the group.
China Mobile (CHL)
Serving more around 540 million subscribers, and with a 72% market
share, China Mobile is China’s largest wireless carrier. It is also the
world’s largest wireless carrier. Unlike the other stocks in the group,
which are single-digit growers, China Mobile is a growth story. Analysts
are looking for 25% or so revenue growth, annually, for the next few
years.
China Mobile is paying a 3.5% dividend
yield. However, unlike the others, which pay quarterly, China Mobile
only pays dividends twice a year, in May and in September. According to
the most recent data, which dates back to 2008, China Mobile used 23% of
its operating cash flow to fund its dividends. Its 11.4% return on
assets is the highest of the group.
Consider the six stocks described here as
candidates for further research, not a buy list. Do you due diligence.
published
6/6/10 |
