Telecom Stocks Prove to Be Safe Harbor for Investors

BOSTON ( TheStreet) -- The telecommunications industry is the top-performing stock sector this year, thanks to its high dividend payouts and domestic focus.

That serves to attract investors seeking shelter from the two biggest challenges they face right now: historically low yields from fixed income investments and the uncertainties stemming from Europe's continuing economic crisis and the volatility they've created in U.S. markets.

"We think the relative appeal of telecom stocks is the stable cash flow generation, minimal to zero exposure to European markets and above-average dividend yields," said S&P Capital IQ analysts in a recent research note.

Telecom stocks are paying an average 4.8% yield, which is attractive to most investors right now, given the low-rate environment and they range as high as Windstream's ( WIN) hefty 10.6%.

Indeed, the sector is the highest dividend yielding sector in the S&P 500 Index, which has helped propel the group to a 12.2% return this year, including 3% in the past week. The consumer-discretionary sector is in second place with a return of 11%. The S&P 500 is up 8% this year.

Many of the telecommunication sector's members appear to still have some upside as several firms are digesting recent acquisitions while the industry consolidates. They're also benefiting from the healthy, but slowing, growth in the number of wireless device subscribers and their increasing dependence on their services, which is boosting chargeable minutes.

Of the seven stocks summarized below, analysts' "buy" ratings range from a low of five to 10, which is a particularly strong showing for any one industry.

Integrated firms, those that offer a wide array of services, such as landline, mobile, wireless and cable, are expected to outperform, as they can make attractive package deals for consumers. That increases their "stickiness," the industry term for keeping a loyal customer base, which helps maintain a steady cash flow and dividends in this highly competitive industry.

But the forward price-to-earnings ratios of the firms in this sector are sky-high, a reflection of investors driving up prices for at least the past year as more and more investors have piled in. The background has been Europe's debt woes and the slowing economy in China, both of which are seen as threatening the growth of large international companies, which are traditionally big dividend payers.

Here are seven of the top telecommunications stocks arranged in inverse order of the number of "buy" ratings they have from analysts:

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