(BCE) - (TI) - (VOD) - Strong Stock Dividends - Seek to Find Good Telecom Yields

Seek to Find Good Telecom Yields, With David Weissman With market volatility expected to continue and investors growing increasingly more concerned about many issues related to the general markets, senior analyst David Weissman, CFA says there are several opportunities to find good telecom stocks with attractive valuations and solid dividend yields within his coverage. We spoke with him recently for his perspective. David, we wanted to discuss with you today the recent economic climate, not to mention the horrific geo-political events and its impact on the telecom investments. What is your overall view at this point? The culmination of conflicts in the Middle East, North Korea and other areas of the world are having devastating effects on economic markets, regardless of whether the investment is technology and telecom related, seasonal or cyclical, small-cap or large-cap. It is important for investors to maintain a long-term investment horizon, diversify in multiple asset types - stock, bonds, cash and tangible assets - and look for solid companies that survive turbulent times like these. Has your overall neutral view on the telecom industry become more negative because of war and other events over the past month? If you look at it from a shorter time horizon, the answer is yes. But, because I also believe that telecommunications is a utility - like electricity, water and other necessities - and the long-term prospects remain intriguing for investors with patience. What can you recommend for investors still interested in maintaining an investment allocation in the telecom industry? During these turbulent market times that may be exacerbated by higher interest rates and continued expectations of inflation, the impact is often more severe in higher-risk telecom and technology equity sectors. If investors are considering an allocation in telecom, it is worth identifying established companies with significant balance sheet strength, strong cash positions, limited debt, and with the ability to effectively improve their business prospects. I look for companies that are offering attractive dividend yields and companies that are large and stable to weather the volatility. Can you give us some examples of respectable dividend-paying telecom companies? Sure. It is rare to find a telecom equipment company paying a dividend. However, most telecom services companies offer some sort of payout to their investors. In that regard, I have identified Embarq (EQ) as offering one of the more attractive dividends in the United States services sector, yielding approximately 5%. Verizon (VZ) is not far behind in terms of a dividend payout, and I believe Verizon would be a more suitable investment as their business is more stable and the company has been around much longer than newly formed EQ, which was the recent spin-off of Sprint's local telephone business. Probably a worthwhile strategy is to couple dividend-paying companies with diversification in foreign countries. Bell Canada (BCE) is also offering an attractive dividend at approximately 4.5% when we last checked. Can you give us some companies outside North America that offer attractive yields? Typically European telecom services companies provide growing dividends to their shareholders. Telecom Italia (TI), for instance, is trading at 13x 2006 earnings and yielding approximately 3.7% in dividends. Vodafone (VOD) is also generating a small return to investors, but it is also growing its wireless business beyond industry expectations, with the possibility of receiving a cash influx should their stake in Verizon Wireless be purchased entirely by Verizon. In other areas, like Asia, Korea Telecom (KTC) is trading at under 10x 2006 earnings and offering approximately 6.8% yield. Similarly, Chunghwa Telecom (CHT), a recognized telecom company in China, is also providing dividends in a similar range. We also surveyed dividend payouts in less stable areas of the world, such as Venezuela. CANTV (VNT) has one of the industries highest dividend yield at nearly 10% of the stock price as it is required to offset political risk. For investors who are less risk-averse and do not restrict investments because of political opinions, this may be something to at least review. David Weissman, CFA is a senior analyst covering the telecommunications industry for Zacks Equity Research. Content Courtesy: Zacks Investment Research | Blog Home| VitalStocks Home