On the dividend yield front, investors tend to steer their cash toward the telecommunications sector, which has a reputation for rewarding income investors over the years.
If you’re in the market for high dividend yields, Real Money's Bob Ciura has a trio of telecom stocks that could light up your portfolio for years to come.
Here’s a snapshot.
For a strong and secure dividend yield, kick some tires on AT&T, Ciura says.
He writes in his Real Money column: After spending more than $150 billion over the past few years to grow into a media giant, AT&T recently declared some major changes. The company announced in mid-May that it would combine its WarnerMedia assets with Discovery, Inc. (DISCA) - Get Discovery, Inc. Class A Report to create a new global media company. The new company will contain assets such as HBO, Warner Bros, Discovery, CNN, TNT others under one roof.
Read more about the telecom stocks and Ciura's outlook for their dividends in his Real Money columns.
"The new entity will be one of the largest media companies in the world and AT&T (T) - Get AT&T Inc. Report shareholders would receive stock representing a 71% stake in the new company. AT&T will also receive $43 billion in cash, securities and retention of debt.
The company expects to pay out 40% to 43% of the projected $20 billion in free cash flow for the new AT&T, resulting in a dividend of approximately $1.15 per share compared to the $2.08 shareholders currently receive. Using our projected post-transaction dividend, the re-rated dividend yield would be around 4%. This is still a strong yield and is well above the average yield of 1.4% for the S&P 500 index."
Ciura expects AT&T’s new dividend payout to be significantly more secure.
Telephone & Data Systems
Broadband expansion and a 5G rollout spell opportunity with Telephone & Data Systems.
Ciura writes that Telephone & Data Systems (TDS) - Get Telephone and Data Systems, Inc. Report product offerings include cellular and landline services, wireless products, broadband, voice and cable. Telephone & Data Systems has a market capitalization of $2.7 billion and generated sales of $5.2 billion in 2020.
Despite its relatively small size, Telephone & Data Systems has one of the longest dividend growth streaks in its industry at 45 years, Ciura notes.
Ciura also writes about Verizon Communications (VZ) - Get Verizon Communications Inc. Report, which he notes has increased its dividend for 16 consecutive years, with the most recent raise resulting in dividend growth of 2% for the Nov. 2, 2020 payment. This is slightly below the company's 10-year average dividend growth rate of 2.3%. The stock offers a 4.5% dividend yield today," Ciura says.
Ciura said he thinks Verizon shareholders will garner a yield that’s more than three times that of the S&P 500 index and the payout ratio is expected to be less than 50% for this year. He also said that Verizon's dividend should continue to grow at a similar rate to that of its historical average.