In the late 1990s, telecom companies like Global Crossing and Worldcom were Wall Street darlings, making investors the easiest money ever. But by 2002, the gold had turned to dust, sweeping away more than $1 trillion in telecom companies’ market value in just 24 months. Even the survivors who have present day dominance like AT&T (NYSE:T), Verizon (NYSE:VZ) and Century Link (NYSE:CTL) took a hit in stock price and dividends.
But times are changing in the sector as surging demand for broadband video and wireless data applications has put the telecom industry back on track. The industry even posted growth in the depth of the recession. And while telecom stock growth is not likely to rival the fast times of the late-1990s, the best companies in the telecom sector like AT&T, Verizon and Century Link are going strong.
Still, investors shouldn’t be fooled into buying these top telecom stocks for their growth. The biggest reason to buy VZ, AT&T or CTL stock is for the income.
Take a look at these three dividend stocks to buy in the telecom sector:
AT&T (NYSE: T). AT&T has a market cap of $187.3 billion and is trading more than 32% over its 52-week low of $23.88 last July. The company boasts a stellar dividend yield of 5.40%. On the down side, AT&T’s price-to-earnings growth (PEG) ratio of 3.49 is quite a bit higher than other players in the sector – an indication that the stock may be overvalued. Leverage also is a negative – the company has $1.39 billion in cash compared to $65.03 billion in debt. AT&T has done a pretty good job of reinventing itself after the 1990s telecom bubble burst. The company is competing aggressively in the broadband arena and has been a successful suitor in several high-profile wireless deals. Most recently. Deutsche Telekom (PINK:DTEGY) accepted AT&T’s $39 billion offer for its T-Mobile USA unit, a deal that if okayed by regulators could reshape the entire U.S. wireless market.
Verizon (NYSE: VZ). Verizon has a market cap of $107 billion and is trading more than 45% above its 52-week low of $25.99 last July. The stock delivers a dividend yield of 5.20%. At 1.95, Verizon’s PEG ratio is better than many competitors. The company’s leverage position is a little better too: cash of $14.73 billion compared to $$61.20 billion in debt. The Edge: Verizon dumped a lot of its old landline assets to competitor Frontier Communications (NYSE: FTR) and has finally ended that all-you-can-eat wireless data plan. The company’s long sought after piece of the iPhone market turned out to have less cachet than it had hoped – it’s holding a $50 off fire sale on its iPhone 4 stock. But even though Verizon is in hot competition with cable giants like Comcast (NASDAQ: CMCSA), it still has a strong position in a growth market.
CenturyLink (NYSE: CTL). CenturyLink has a market cap of $24.62 billion and is trading nearly 24% above its 52-week low of $33.14 last July. The company pays an impressive dividend yield of 7.10%. CenturyLink’s PEG ratio is a little high at 2.71, and it has only $269.66 million in cash compared to $7.18 billion in debt. The Edge: Though not quite as well known as AT&T and Verizon, CenturyLink is still the nation’s third-largest telecom company. The company spent $12.2 billion earlier this year to acquire Qwest, the fourth-largest U.S. telecom company. The combined entity operates 17 million phone lines in 37 states and boasts 5 million broadband customers. CenturyLink doesn’t have the wireless presence of AT&T and Verizon, so its growth strategy focuses on the “3 Bs – broadband, business and backhaul”. Backhaul – providing fiber optic transmission support for wireless carriers – is CenturyLink’s back-door play on telecom’s hottest growth niche.
As of this writing, Susan J. Aluise did not hold a position in any of the stocks mentioned here.
