UBS Very Positive on Telecom: 4 Dividend Stocks to Buy

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In a market that has been all over the place this year, from down 12% to hitting new all-time highs, the outperforming sectors have been the ones usually reserved for bad times on Wall Street. One sector that has led the pack is telecommunications, and despite the sharp rise in some of the top companies, there is every reason to believe that many of them not only had a solid second quarter but could have a strong rest of 2016.

A new and very extensive report from UBS focuses on most of the leaders in the telecom, tower and pay-TV world. We screened the list for the top stocks that continue to be rated Buy and also offer investors a tidy little dividend to help boost total return. We came up with four that look like solid picks for the rest of the year.

AT&T

After an outstanding first quarter from a stock price standpoint, this stock could be poised to go higher. 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.

With its shares trading at a very cheap 14.3 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 UBS team thinks there is possible upside to current Wall Street estimates, not only for 2016 but for 2017, as well due to higher segment profitability. They also point to the company’s positive commentary on free cash flow, in addition to improving video/broadband trends later this year, with single truck-roll and new converged offerings expected to be coming in October.

AT&T investors are paid a huge 4.5% dividend. The UBS price target for the stock is $42, and the Wall Street consensus target is at $41. The stock closed most recently at $42.77 per share.

Crown Castle International

This top tower company offers incredible growth and income possibilities, and it is structured as a real estate investment trust (REIT). 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.

First-quarter earnings came in better than expected, while revenue was up 3.8% year over year but in line with expectations. The company said organic site rental revenues rose 8% year over year, and management increased the midpoint of the full 2016 outlook for adjusted funds from operations (AFFO) by 9% to $4.70 per share. The company also recently acquired Tower Development for $461 million in cash in a transaction that should be immediately accretive to AFFO per share.

Crown Castle’s shareholders are paid a solid 3.55% distribution. The UBS price target was lifted to $110 from $95, and the consensus target is posted at $97. The shares closed on Tuesday at $99.66.