A Look at ILEC Dividend Yields at the end of 2007 through 2011
The telecom sector has long been a top destination for investors seeking dividends with many ILECs paying consistent, reliable dividends. Some are known for their attractive high yielding dividends, such as Windstream and Frontier Communications, while others such as AT&T and Verizon have historically offered investors a steady, reliable dividend. This week I look at the dividend yields of the publicly traded ILECs as of the end of the year for the last five years, December 31, 2007, through December 31, 2011.
I calculated the year-end dividend yields by annualizing the most recent period dividend at the end of the year divided by the final stock price on the last trading day of the year.
I expected to see an increase in dividend yields since 2007 as almost all publically traded ILECs have seen their share prices decline over the period, the exceptions being HickoryTech and Warwick Valley. Well, that is exactly what the data shows with the ILECs, on average, paying dividends at a 1.5% higher rate, or an increase of 31.3%, at the end of 2011 versus the end of 2007 as share prices on average declined 23.7%. I didn’t pay much attention to the dividend yields at the end of 2008 as yields spiked due to the sharp drop in share prices as a result of the market collapse in the in the second half of 2008.
It should also be noted that while share prices declined, roughly half of the ILECs increased annual dividends paid in the last several years, presumably in an attempt to lift their stock prices. Of all the publicly traded ILECs paying dividends at the end of 2011, only one had a dividend yield of less than 3.0%. At the end of 2007, four had dividend yields below 3.0%.
Some notable changes include Alaska Communications, SureWest Communications, and Frontier Communications. Alaska Communications cut its quarterly dividend from 0.215 cents to 0.05 cents per share on December 21, 2011. Its stock priced declined 23.7% the next day. The company cited reduced high cost support for wireline and wireless services due to Universal Service Reform and the resulting need to increase its cash position as the reason for the rate cut. With the combination of the drop in dividend and the decline in stock price, Alaska Communications still yielded a strong 6.6% dividend rate at the end of 2011. At the other end of the spectrum, SureWest announced on March 29, 2011 that it would begin paying a quarterly dividend after not paying one for years. Its share price increased 14.4% the following day.
Frontier Communications dividend yield spiked during 2011 as its share price tanked. During 2011, Frontier share price declined 47.1% lifting its dividend yield from 7.7% to 14.6%. Currently, Frontier Communications still generates enough cash from operations to support its dividend. However, Frontier does not have the diversity of revenue streams that some of the other ILECs have, consequently, its steady decline in access lines may eventually erode its dividend paying capacity.
Wednesday, January 25, 2012 at 4:10PM 