How many days might you go without your mobile phone? My guess for most of the population would be zero days — and for most an hour or so would be taxing.
And how many days might you go without your internet connection? I mean cold turkey, no internet, no browsing, no video or music streaming? Again, for most people, the answer would likely be naught.
Folks are so tethered either by wire or wireless connections that telecom companies have a lock on their customers. And sure, there is some competition. But for most markets, internet companies typically have no competition and swapping from one wireless provider for another is not very common occurrence for many customers.
This makes for a great recipe for strong, consistent and even rising revenues, which in turn provide lots of cash for strong, consistent and even rising dividends. And that’s why I love these 3 solid dividend stocks from the telecom market.
Telecom Dividend Stocks #1: AT&T Stock
Start with Ma Bell, also known as AT&T Inc. (NYSE:T). AT&T provides the far reach of its vast wireless network around the U.S. and continues to expand its offerings via satellite with its Directv, U-Verse and internet services units. And AT&T is also in the works to expand its offerings to include content from Time Warner. Right now, that deal is in the hand of the courts as the U.S. government seeks to block the merger .
AT&T’s revenues are largely steady — but heavy. And margins are fat on its offerings, running at 13% and making for an ample dividend coverage with a payout sitting at only 41%. Little debt for now and ample returns on its capital-intensive assets make T stock attractive for years to come.
And the shares trade at a low price-to-book ratio of only 1.5 times and a mere 1.4 times its trailing revenues. This is a bargain for a dividend yield of 5.66% that’s been on the rise for the past five years.
Telecom Dividend Stocks #2: Verizon Stock
Next is AT&T’s prime competitor: Verizon Communications Inc. (NYSE:VZ). Verizon is actually bigger than Ma Bell in the wireless market — but trails in internet and related services. It also provides online content and other products and services via its acquisition of AOL and Yahoo.
In addition, Verizon also is a prime provider for communications for the U.S. Government. All of this makes for a similar story of ample cash to support a great dividend.
Revenues are solid, if not exactly rising by much. But VZ has even fatter operating margins than AT&T at 21.8%. And that profit rate along with minimal debt makes for a dividend that’s overly protected with a payout rate of only 31.6%.
Verizon’s dividend has risen steadily over the past five years and now yields 4.83%, making VZ a solid dividend stock to call up for your own portfolio.
Telecom Dividend Stocks #3: BCE Stock
Last of the three is BCE Inc. (USA) (NYSE:BCE), which stands for Bell Canada Enterprises but is known simply as Bell Canada. The company is the largest communications company in Canada. It dominates wireless, wireline and internet communications as well as television and other content products and services.
The story with BCE is similar to AT&T and Verizon with lots of cash being generated from its communications assets. But it does have an advantage over its U.S. rivals in that revenues continue to move higher — making a case for a bit more growth for investors.
Margins are fat with operating profits running at 22.6% and debt is low like its southern peers. But the downside is that with some added growth in revenues comes from additional spending. This means a somewhat less defended dividend with a current payout rate of 92.1%
But given revenue growth and the positive operating margins — I see the dividend as safe. It has been bumped up nicely in the past 12 months to a current yield of 5.45%.
BCE makes for a great dividend payer that along with AT&T and Verizon would make for a nice payout trilogy.
Neil George is the editor of Profitable Investing and does not have any holdings in the securities mentioned above.