Telecom & Wireless

Deutsche Bank Says Buy the Big Dividend Telecom Stocks Now

courtesy of AT&T Inc.

After almost two months of a relentless roller-coaster of up and down triple-digit days, some investors are ready for a smoother ride. While momentum and super aggressive growth stocks can generate alpha, they can also generate an upset stomach as they tend to move with the big swings in the market. One way to smooth out the roller-coaster ride but still get solid total return is invest in the telecom segment.

In a new Deutsche Bank report initiating coverage of U.S. telecom services, the analysts acknowledge that while defensive and safer in nature, the top yielding telecom stocks and the sector as a whole have a challenging growth trajectory in the near term. Dividends become all that more important to add to total return.

The analysts start coverage on 10 companies, but we screened for the top yielding companies rated Buy and found three that make very good sense for investors now.

AT&T

This company will continue to serve customers regardless of where oil trades and the markets swing. AT&T Inc. (NYSE: T) is the world’s largest provider of pay TV, with TV customers in the United States and 11 Latin American countries. In the United States, the AT&T wireless network has the nation’s self-described strongest 4G LTE signal and most reliable 4G LTE.

The company also helps businesses worldwide serve their customers better with mobility and highly secure cloud solutions. While shares trade at a very cheap 12.5 times estimated 2016 earnings, the company continues to expand its user base, and strong product introductions from smartphone vendors have not only driven traffic but increased device financing plans.

The Deutsche Bank team favors companies benefiting from what they term as “scale-related cost efficiencies” as a means of preserving and improving overall corporate profitability. They see AT&T as one of the companies that is a key beneficiary of this, as huge revenue growth opportunities are not as prevalent.


While fourth-quarter earnings were in line with forecasts, and slightly below the Wall Street estimates, a change in accounting for the entertainment group lowered revenue/EBITDA by $300 million for the quarter. Wall Street analysts note that this knocked three cents off the bottom line numbers. All in all, a solid quarter and another reason for conservative accounts to own the stock, especially with solid DirecTV additions and mid-single-digit earnings growth estimated for 2016.

AT&T investors are paid a huge 5.18% dividend. The Deutsche Bank price target for the stock is $40, and the Thomson/First Call consensus estimate is $37.54. Shares closed Wednesday at $37.10.

Crown Castle International

This is a top cell tower company that offers incredible growth and income possibilities. Crown Castle International Corp. (NYSE: CCI) provides wireless carriers with the infrastructure they need to keep people connected and businesses running. With approximately 40,000 towers and 15,000 small cell nodes supported by approximately 16,000 miles of fiber, Crown Castle is the nation’s largest provider of shared wireless infrastructure, with a significant presence in the top 100 U.S. markets.

Deutsche Bank sees the company as what it considers the cleanest play of U.S. mobile infrastructure spending. The firm cites the company’s low risk capital return strategy, upside optionality from the smaller cells and what they consider the company’s investment grade balance sheet.

Crown Castle shareholders receive a very nice 4.1% dividend. Deutsche Bank has a $98 price target, and the consensus target is set at $95.38. The shares closed most recently at $86.30.

Frontier Communications

This is a rural local exchange carrier that that really expanded service recently. Frontier Communications Corp. (NASDAQ: FTR) offers broadband, voice, video, wireless Internet data access, data security solutions, bundled offerings, specialized bundles for residential customers, small businesses and home offices and advanced business communications for medium and large businesses in 28 states. Frontier’s approximately 17,800 employees are based entirely in the United States. Wall Street analysts note that the company has taken broadband share in almost 80% of operating markets last year.

The company got final approval in May of last year for an $8.5 billion acquisition of Verizon’s wireline operations that were providing services to residential, commercial and wholesale customers in California, Florida and Texas. The Verizon assets should be accretive and help the company grow free cash flow, and they also could help the company begin to grow the dividend again. In addition, the government’s CAF-II plan to increase broadband access in rural areas should help boost sales and EBITDA slightly.

Frontier investors receive an outstanding 7.92% dividend. The $5.50 Deutsche Bank price target is lower than the consensus target of $6.21. Shares closed on Wednesday at $5.30.

While these may not be the most exciting stocks in the world, they will deliver consistent dividends while growing their respective businesses. All make good sense for growth and income accounts where total return is an important goal.

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