Citizens' Bundles of Joy

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With rapidly changing technology and intense competition, the telecommunications market is notoriously tough and cost-sensitive.

For rural telcos such as Motley Fool Income Investor pick Citizens Communications (NYSE: CZN), the job is even tougher because of the low density of subscribers in target markets. But Citizens showed in its fourth-quarter earnings report that it can hold its own as a rural communications provider.

Citizens' revenue in the fourth quarter grew 14% to $577.2 million. The top-line growth came from two recent acquisitions and increased revenue from data and Internet services that offset losses in basic access line services. Net income dropped 8% from last year, to $59 million, though, as higher operating expenses, as well as tax expenses, hit the bottom line.

Unlike AT&T (NYSE: T) and Sprint Nextel (NYSE: S), Citizens doesn't have the benefit of healthy growth from a wireless business making up for the strain on its wired communications offerings. But good management of resources keeps the pain to a minimum, while growth strategies such as acquisitions help fill in the gaps. Along this line, the company increased its estimate of annual synergies from the Commonwealth Telephone acquisition from $30 million to $40 million.

To keep customers from joining competitors such as Verizon (NYSE: VZ) and Qwest (NYSE: Q), Citizens has been enticing new and existing customers with product bundles. Multiservice plans include a free Dell (Nasdaq: DELL) computer or Dish Network (Nasdaq: DISH) service in exchange for a two- or three-year commitment to a bundled service plan. CEO Maggie Wilderotter noted that the bundled offerings each have less than a 12-month payback and helped add 22,400 high-speed Internet customers in the quarter.

The softening economy and rising costs that Citizens bears in order to offer superior customer service have weighed on shares recently, as the stock sits more than 20% lower than six months ago. To take advantage of this, the company authorized a $200 million stock buyback plan for the next year.

Combine the buyback with projected 2008 cash flow of $450 million to $475 million and an 8.7% dividend yield, though, and you get a company that pays investors to hold the stock. And although Citizens isn't the most exciting growth business, strong management with a commitment to realizing value for shareholders is enticing.

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