Telecom & Wireless

UBS Very Positive on Telecom: 4 Dividend Stocks to Buy

CenturyLink

This is the largest of the rural local exchange carriers (RLECs) and is expected to continue get a large dose of government money to provide continuing internet service in rural areas. CenturyLink Inc. (NYSE: CTL) is a global communications, hosting, cloud and IT services company enabling millions of customers to transform their businesses through innovative technology solutions.

CenturyLink offers network and data systems management, Big Data analytics and IT consulting, and it operates more than 55 data centers in North America, Europe and Asia. The company provides broadband, voice, video, data and managed services over a robust 250,000-route-mile U.S. fiber network and a 300,000-route-mile international transport network.

Top Wall Street analysts have liked like the stock over the past year as the company transforms itself from a telecom to a technology company. While some have worried over CenturyLink maintaining the dividend, the UBS team is positive on the comparisons for the second half of the year and sequential revenue stability. They also cite an update on the data center sale progress and the potential for stock buybacks as additional positives.

CenturyLink investors are paid a gigantic 7.08% dividend. The $36 UBS price target for the stock is well above the consensus estimate of $29.57. The stock closed trading on Tuesday at $30.49.

Frontier Communications

This is another RLEC that the UBS team has remained positive on. 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. Its 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 reported a better than anticipated first quarter EBITDA number and guided in-line to ahead of Wall Street estimates on post-Verizon deal cash flow and synergies which the analysts feel will be positive. Frontier is the highest yielding non-energy component in the S&P 500.

The UBS team also expect the company to maintain its 2016 free-cash-flow estimates, which implies and attractive dividend payout level of 50% and free cash flow of 15%.

Frontier investors receive a huge 8.37% dividend. UBS has a strong $7 price target, while the consensus target is lower at $6.07. Shares closed Tuesday at $5.02.

We focused on the top dividend-paying stocks in the UBS list, and all of them make good additions to growth and income portfolios. Investors may want to buy partial positions in front of the upcoming earnings reports.