Telecom is still the go-to sector for juicy dividend yields. With money-market funds offering nothing, the overall stock market yielding 2.0% and ten-year Treasury bonds still paying only 3.4%, phone-stock yields of 5% and more are hard to pass up. In fact, of the 12 highest-yielding companies in Standard & Poor’s 500-stock index, five are telecoms. Their yields range from 5.5% for Verizon Communications to 7.8% for Frontier Communications.
Companies that mostly serve traditional land-line users are losing revenue as their customers go completely wireless. The wireless sector, meanwhile, continues to grow, but not at as fast a pace as it once did, and competition among carriers is fierce. Except for AT&T and Verizon, most of the highest yielders are rural, land-line-oriented companies trying to adapt in a shrinking market. Some are trying to raise revenues by selling “triple play” packages of Internet, phone and TV services to residential customers over their copper-wire networks, while others are focusing on providing services to business clients. “Being a land-line provider may not be as profitable and have the kind of growth prospects as a wireless provider, but it need not be a death knell,” says Lisa Pierce, president of Strategic Networks Group, a telecom-research outfit in Bradenton, Fla.
If you want an unmanaged approach, Vanguard offers its Telecom Services ETF (VOX) and mutual fund. The ETF is a share class of the mutual fund. Although the ten biggest holdings of both funds include Verizon, AT&T, Frontier and Windstream — and Verizon and AT&T account for 44% of assets of both – the funds also own many low-paying stocks. As a result, although each fund returned 19.4 % in 2010 through December 27, each yields a modest 2.4% (note that the minimum investment for the mutual fund is $100,000). If you’re looking for big yields, better to stick with the actual stocks.
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