Despite the competition, the telecom industry is experiencing huge growth as more people use more of its services. Consider buying some stock from telecommunications companies because they currently offer great dividends.
Companies can create steady revenue streams by locking in subscribers to one- or two-year contracts. This allows the telecoms to project their future earnings with more accuracy and provide better profit potential.
The disadvantages of telecom stocks
Despite the advantages, the rapid pace of technological change and increased competition has made telecom stocks riskier than ever before. Two terms once associated with dividend stocks — safe earnings and reliable cash flows — no longer apply to telecom stocks because dramatic cost cutting seems to be the common strategy, and customer loyalty appears to be a relic of the past.
Defining a telecommunications company
So many different industries use the modern-day telecommunication industry’s infrastructure that the lines defining what is and isn’t a form of telecommunications have become very blurry. Some of the subsectors that qualify as telecoms are
Wireless companies: As people give up their home telephones for cellphones, the wireless phone companies chip away at the classic landline telephone business. With mobile phones capable of browsing the Internet and receiving television signals, wireless companies now offer those services, grabbing advertising dollars that used to go to those other industries.
Cable companies: Cable companies now offer phone services on the broadband Internet they send over their high-speed video networks.
Classic telephone companies: Unwilling to sit back and do nothing, traditional phone companies offer bundled packages combining landlines with wireless services such as cellphones, the Internet, and digital TV.
Telecom equipment manufacturers: Although these companies provide equipment and services to the telecom industry, they share more characteristics with technology companies than they do with the telecoms. Much less stable and with less predictable cash flows, few of these companies offer dividends. Those that do typically have yields small enough that you can ignore them.
Some telecoms to consider
As with most sectors, some telecom companies perform better and more reliably than others for dividend investors.
| Yield as of 12/31/09 | Name | Ticker Symbol | Annual Dividend |
|---|---|---|---|
| 12.8% | Frontier Communications | FTR | $1.00 |
| 10.8% | Alaska Communications Systems Group | ALSK | $0.86 |
| 9.7% | Iowa Telecommunications Services | IWA | $1.62 |
| 9.1% | Windstream | WIN | $1.00 |
| 8.9% | Consolidated Communications Holdings | CNSL | $1.55 |
| 7.7% | Centurytel | CTL | $2.80 |
| 7.6% | Qwest Communications Intl. | Q | $0.32 |
| 6.7% | Warwick Valley Telephone | WWVY | $0.88 |
| 6.3% | BCE | BCE | $1.74 |
| 6.0% | AT&T | T | $1.68 |
| 5.9% | Hickory Tech | HTCO | $0.52 |
| 5.7% | Verizon Communications | VZ | $1.90 |