Published Wed, 23 Apr 2014 12:00 CET by DividendYields.orgAs the current earnings season approaches the halfway mark, investors continue to evaluate their holding positions to see whether they should tweak their portfolios. This season has not been the best for large companies like Google (Nasdaq: GOOG), IBM (NYSE: IBM) and Bank of America (NYSE: BAC), since they all missed Q1 estimates. Now analysts predict that the S&P 500 will post a per share income of about $27.50, compared to the initial prediction of $27.60 for Q1.
However, dividend investors could still smile, especially those investing in the telecom industry. While the technology sector so far has seen 5 out of 15 companies miss Q1 estimates, giant telecommunication companies like AT&T (NYSE: T) and Verizon (Nasdaq: VZ) continue to pay a healthy dividend. On the other hand, British telecom giant Vodafone (NYSE: VOD) also pays a compelling dividend, but at a crucially high payout ratio.
AT&T has shown resilience in dividend payments
AT&T’s dividend has grown year-over-year for the last 10 years, making it one of the best dividend stocks in the telecommunications industry. The company’s current 5-year dividend growth rate stands at 2.6%, which might appear unattractive for investors looking for quick cash rather than a stable incremental dividend.
However, the company has grown its dividend over the last ten years, even during the global financial crises, which indicates just how stable the company is when it comes to paying dividends. After its annual dividend declined from $1.369 per share in 2003 to $1.252 in 2004, AT&T has posted an incremental dividend over the last ten years, making it one of the most consistent dividend paying stocks in the market. The current annual dividend is pegged at about $1.84 per share, which equates to a yield of about 5.06%, at a payout ratio of 53%.
The company 5-year average dividend yield stands at 5.50%, which again indicates how consistently the company has delivered value for money to shareholders.
Verizon Communications is still in the game
While AT&T stands out in terms of dividend yield and incremental consistency for the last ten years, Verizon Communications, U.S’s second largest wireless telecommunications company after AT&T is still in the game. Verizon is paying its shareholders dividend at a yield of 4.42%, based on the current stock price of $47.92. This is slightly below AT&T’s 5.06%. However, in terms of 5-year dividend growth rate, Verizon has a better figure at 3.07%.
The company’s current payout ratio stands at 52% slightly below AT&T’s 53%. Nonetheless, there is nothing large to separate the two U.S-based telecommunication giants in that respect.
Verizon Communications has a massive debt on its balance sheet, currently pegged at $93.61 billion compared to AT&T’s $75.31 billion. However, in terms of total cash, Verizon tramps AT&T with $54.13 billion compared to its rival’s $3.44 billion.
Is Vodafone in the game?
With a dividend yield of 3.20%, to many, Vodafone meets one of the most essential requirements for a dividend stock. However, when we look at the ratio of the dividend paid to the company’s earnings, the staggering figure of 1,145 (%) could easily put every investor off.
After selling its stake in Verizon Wireless to Verizon Communications, many analysts have aired their views on what the company should do with the $130 billion proceeds. This cut Vodafone’s value to about $100 billion. However, the company’s shares have since tumbled to lose an additional 4% in value to a market capitalization of $96 billion.
Analysts have been speculating about the company expanding its market share in Europe and Africa as it seeks to put the money into sturdy use. Shareholders of Vodafone had the option to receive cash or stock after the sale.
The company’s trailing annual dividend yield stands at about 4.50%, while the forward annual dividend yield is pegged at 5.70%. This equates to a growth rate of about 26.67%. This is slightly below the company’s 5-year dividend growth rate of 37.04%.
Looking at the trailing 12-month (TTM) dividend yields for the three companies, Vodafone seems to be the one growing at a faster rate compared with the rest, which reaffirms its towering 5-year dividend growth rate.
AT&T, Verizon Communications and Vodafone 5-year Dividend Yield (TTM) (Source: YCharts)
Nonetheless, as noted at the beginning, the massive payout ratio of 1,145 (%) could be deceitful of the company’s ability to sustain the current dividend rate, let alone increase it. In this case, the two U.S giants seem to be the better candidates for a dividend investor.
The bottom line is that the telecom industry still offers a good opportunity for dividend stocks in the technology sector, especially considering the fact that most of its revenues are contract–based, which means they are highly sustainable.
|Stock name||Dividend Yield|
Articles featuring At&t (T):
The Retirees' Dividend Portfolio - John And Jane's June Taxable Account Update: The Danger Of Making AssumptionsIntroduction Assumptions can be a useful tool when trying to examine the impact of a hypothetical scenario, especially when investing. For instance, it would be necessary to use assumptions when forecasting expected dividend income. When I perform a task like this, I like to establish a range that I can reasonably expect will occur. Worst-case scenario Baseline scenario Above-average scenario The point of making different assumptions is to build a range that we expect our true scenario... Read more