Companies such as Vodafone Group PLC (VOD) and Frontier Communications Corporation (FTR) remain well placed in the telecom industry with good returns even after severe recessionary times. Given the importance of telecommunication services worldwide, these companies have certainly built their positions in the long-term portfolio of investors.
Going by the look of things, the recent upheaval in the economy has certainly influenced the U.S. market, due to which investors are now seeking more value for each penny invested.
A high-dividend-paying stock is always preferred during turbulent times. Given the present market scenario and more cautious investors, companies with higher returns are turning out to be the centre of market attraction.
Coming back to the telecom sector, Vodafone issued a dividend per share growth plan of minimum 7% per annum through 2013. Currently, the company pays an annual dividend of $1.33 with a yield of approximately 4.5% and dividend payout ratio of 51%. The company pays dividend twice a year in June and November. The five years’ average annual dividend growth rate of Vodafone stands at 12.3% with yield of 5.22%.
However, Frontier’s 2010 underperformance with earnings of 37 cents per share as against 54 cents in 2009 also affected the dividend payment. Frontier currently pays an annual dividend of 75 cents per share, effective since July 2010.
Earlier, the company paid a dividend of $1.00. The yield remains strong at approximately 9.15% and payout ratio of 88%. The company pays dividend four times a year. We expect Frontier to focus on strengthening its highly leveraged balance sheet and improve the sustainability of dividend payments over the coming years.
Other companies in the telecom industry that investors can look for higher returns include Verizon Communications Inc. (VZ) with current annual dividend of $1.95 and dividend yield of approximately 5.36%, AT&T Inc. (T) with current annual dividend of $1.72 and dividend yield of 6.11% as well as Windstream Corp. (WIN) with current annual dividend of $1.00 and dividend yield of 8%.
We are currently maintaining our long-term Neutral recommendation on Vodafone and Frontier; the companies hold Zacks #3 Rank (Hold) and Zacks #4 Rank (Sell), respectively.