Verizon Communications (VZ)

The dividends are being covered now. There is a lot of change in the sector. If you want to take a chance on them working through it, okay, but he is not. He does not participate in the sector.

Like Bell Canada (BC-T), this pays a big dividend. It has been a little weak, but did report slightly stronger than expected earnings. The outlook is sort of flattish. You own this for its dividend. If you are a Canadian investor, you might as well own Bell, and get the dividend tax credit, not pay double taxation by paying US taxes.

This is one he would be buying here. You don’t have to worry about the dividend. A lot of the pressure was about them buying the Yahoo position. The other part of this company that is much more difficult is that they are one of the ones that really don’t have that Time Warner aspect of it where everybody wants them to buy something to fill that gap in their portfolio.

The dividend yield is great, and that usually forms half the return you should expect to earn. Telcos are going through radical and rampant evolution and change. The exceptionally disruptive players in the US is “creaming pricing”, and a lot of money needs to be invested to remain competitive. Cell phone penetration is very high. There is a lot of technological disruption. As long as rates stay low, this is okay, but it is not a fast-growing area.

They are having troubles like AT&T. TMUS-Q has unlimited usage and that has been taking a lot of customers away. Right now it is a race to the bottom. He would prefer Canadian telecom companies.

Had a bad quarter. Adjusted EPS was $.95, compared to $1.06 a year ago. This was really because of competition. US has now become Europe, because everybody is fighting over that last foot in the door and trying to come up with products that people are going to take, as well as spend money on. The dividend yield is high. The dividend increase was not great. You are almost getting a bond -like yield, so you are somewhat better to own the bonds than the stock, because you rate higher in the corporate chain, but you are getting the same kind of payout. He has been buying their bonds as opposed to their stocks.

This is going to have a low, very consistent return. One of the better ones in that it has a higher Return on Capital than most. Not huge, about 6% as opposed to 4% and 5%, but that is enough in the telecom to make it just a little better than most, and worth getting into. 5% yield with a 30% payout ratio.

Why are industries like this going down? No one really knows. He has been using an ETF IYZ-, which is a more comprehensive, broad-based exposure to telecom in the US. It is cheap relative to the markets over the last year or two. This stock has been a perennial under performer.

US’s largest cell phone provider. He likes the sector. Growth in North American wireless has slowed down quite a bit. We are reaching a relatively high level of penetration, and there is not going to be as much growth as there has been over the last 10 years. However, these companies continue to generate a lot of free cash flow. They are great businesses, and he likes to buy the market leader in this type of business. From his perspective, this company has the best network, so they get the highest value customers.

The only reason to buy this is because of its very high dividend. After 20 years, you are back where you started with this, but all along the way you have collected a good dividend. This company has some massive issues, because the costs for cell phone usage keeps coming down, and that is not a good model when your revenues keep coming down. Their debt was downgraded and is now rated as a BBB. The dividend is safe now, but someday you worry whether that will continue. He likes dividends, but he also likes dividend increases.

An interesting play on Netflix. It is a defensive play. He wishes Rogers would put as much money into their infrastructure as VZ-N.

This gives a comfort and sense of security, and is a service we all use, especially in the US. They are large and pay a big dividend. However, the stock chart shows it hasn’t done much for a while. It has really gone sideways for several years at around $50. Other than the dividend, there hasn’t been any real capital appreciation. They are going through a transition. They were a telephone company initially, then a mobile cell phone company, and now getting heavily into media and transitioning once again. With their acquisitions, there is risk. If you own, he would suggest switching to Canadian telcos instead because of the dividend tax credit.

A very unique company. They’ve done a deal with Yahoo (YHOO-Q) that is closing in the next little while. Spent a lot of CapX putting fibre to the home, and are going to get the benefits of that over the next several years. You’re not going to get a huge upside, but you can see them slowly grow, and get 8%-10% in returns. Great dividend yield. Relative to AT&T (T-N), it doesn’t have the CapX spend. There may be a time when they feel content becomes very important and they need to do a deal, and that is something you should watch for. Content companies tend to be much more expensive.

From 2014, the chart shows this really has been fairly flat between about $44 and $51. Currently, it is at its support level, and he would be a little concerned if it broke down below this. The chart shows this year a series of lower highs have taken place. Typically telecoms do well in the fall.

We have seen the pull back across the biggies. They are now trying to get into content. Investors are trying to decide what it is they own. There is a large retail investor base in this stock and it no longer looks like it will be a utility stock going forward. The 4.9% dividend may not be reliable in the long term, although there is no stress on it. The content business is not historically that reliable to pay a dividend out of.