High dividends are the norm in the telecom industry, with most of the sector’s giants offering returns exceeding 5 percent. However, the nice dividends usually come at a steep cost. Buying into AT&T (T) or Verizon (VZ) isn’t cheap, and many investors won’t even bother. However, there are three telecom stocks with high dividends that have lost anywhere from 15 to 50 percent of their value year-to-date. Whether you view this as an excellent opportunity to buy into a nice dividend on the cheap or a sign that the company is on the verge of making a change, these three stocks should get a closer look.
Alaska Dividend Moose or Mosquito?
Alaska Communications Systems Group, Inc. (ALSK): This Alaska based full-service telecommunications company features the sector’s best dividend yields at 17.06 percent. This solid yield has long attracted investors to the stock, but shares are off almost 55 percent on the year. The stock had consistently declined off of its 52-week high of $11.65 a share in December of 2010 before it cratered on November 9 following a negative earnings report, in which it posted a net loss of $0.02 per share, with shares dropping over 28 percent in a single day. The stock has lost another 5 percent since, but it’s still offering its hefty dividend. Alaska’s industry-high yield would seem like enough to bolster the share price, but part of the precipitous plunge in Alaska’s shares can be attributed to a single statement by company management during their earnings call: “Our board has been reviewing our dividend policy.”
A Bold Old Frontier?
Frontier Communications Corp (FTR): Frontier Communications Corp represents a much larger company than Alaska Communications, featuring a market cap of $5.44 billion to Alaska’s $227.82 million, because it caters to a much larger geographical area. Frontier began offering their dividend 2008, and the yield has proven consistently strong, currently at 13.71 percent. However, Frontier, which made an $8.6 billion agreement to purchase 4.8 million land lines from Verizon in May of 2009, has seen their stock plummet over 43 percent on the year. Marred by bad earnings reports, questions about their pension plan, and, once again, speculation about whether or not their dividend is sustainable, Frontier’s shares have taken a real beating. However, to a bargain shopper willing to risk the potential of the dividend being either ended or suspended, Frontier could be an appealing investment to consider.
Buy on the Bayou?
CenturyLink, Inc. (CTL): Moving one notch further up the food chain is Monroe, LA-based CenturyLink, the nation’s third largest telecom company with a market cap of $23.21 billion. CenturyLink offers a more modest dividend than Alaska or Frontier at 7.72 percent, but it remains a very strong return on investment. However, the company’s share price has declined in 2011, falling some 18 percent year-to-date. The majority of the decline came after the August 2 release of the company’s Q2 earnings report which saw a major decline in year over year profits and disappointing new Q3 guidance. However, since reaching its 52-week low on August 8 at $31.82 per share, CenturyLink has rebounded over 11 percent. While CenturyLink has a much lower dividend than Alaska or Frontier, it also doesn’t appear to have quite so many black clouds circling it. It’s possible that a combination of an attractive buying price from the August sell-off combined with the high dividend yield could make CenturyLink an appealing stock for some investors.
Feast or Famine?
A high dividend yield combined with a depressed share price could mean an opportunity to board a consistent money train on the cheap. Then again, the dropping stock value could also be a sign that a company is on the verge of being forced to roll back or even eliminate the very dividend that makes it at all attractive in the first place. Either way, the impressive yields and low share prices offered by these telecom companies warrant at least some consideration.