5 Telecom Stocks Paying Big Dividends

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published 20 December 2016

Telecommunications stocks have long been a go-to source of generous dividends for income investors. No, these companies typically don't have strong growth prospects. What they do have is tremendous free cash flow -- cash profits left over after a company makes the capital expenditures needed to maintain the business -- and that supports sizable payouts. As long as phone and internet customers keep paying their bills every month, the sluice for dividends remains open. That's why telecoms often display low volatility relative to the broader stock market and make for good defensive holdings.

One caveat, however, is that an unusually high dividend yield can be a red flag for the sustainability of the payout stream. With that in mind, here are five telecom stocks with low volatility and high yields, ordered from lowest dividend yield to highest.

Disclaimer

Prices and related figures are as of December 8, unless otherwise indicated. Volatility was determined by looking at each stock’s beta. A beta of 1 indicates a stock is as volatile as Standard & Poor’s 500-stock index, while a beta below 1 indicates a stock is less volatile than the broader market. All five telecom stocks have betas below 1.

Verizon

Symbol: VZ
Share price: $51.13
Dividend yield: 4.5%

One of the 30 components of the Dow Jones Industrial Average, Verizon has paid steady dividends for more than 30 years and has hiked its payout annually for the past 10. That's a dividend you can count on. Furthermore, the stock has an attractive balance of risk and reward. With a beta of just 0.39, Verizon offers a much smoother ride than the broader market. That's important because share-price volatility can increase the risk that an investor will buy high. At the same time, the stock is up a market-beating 11% year-to-date, and its yield is more than double that of the S&P 500.

In a bid to boost future earnings growth, Verizon is addressing the saturated telecom services market by investing heavily in digital mobile advertising and content. It bought web portal AOL last year and is now in the process of acquiring Yahoo.

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AT&T

Symbol: T
Share price: $40.41
Dividend yield: 4.8%

The argument for investing in AT&T is pretty much the same as it is for Verizon. This is a blue-chip dividend stalwart with low volatility, a river of free cash flow and a plan to get in on the fast-growth markets of digital content and advertising. That's why AT&T acquired DirecTV last year and struck a deal to buy Time Warner earlier this year.

The wisdom of the Time Warner deal has been questioned by some -- and might even be quashed on regulatory grounds -- but that won't affect the annual payout. Indeed, given some of the criticism of the proposed acquisition, shares might actually rise if it doesn't go through. Most importantly, AT&T has raised its dividend every year for more than three decades.