Best Dividend Play: Verizon, Frontier, or Turkcell?

In this Motley Fool series, we rank three related stocks on five criteria to determine the best buy.

Today's match-up is Verizon (NYSE: VZ  ) vs. Frontier Communications (NYSE: FTR  ) vs. Turkcell (NYSE: TKC  ) .

In the telecom space, there have been three types of dividend plays that have sported particularly tempting dividend yields.

• Big domestic carriers like Verizon, AT&T (NYSE: T  ) , and CenturyLink (NYSE: CTL  ) (which is in the process of acquiring Qwest). Their dividend yields are 6.3%, 6.2%, and 8%, respectively.
• Rural landline-focused carriers like Frontier Communications and Windstream (Nasdaq: WIN  ) . Yields of 9.8% and 8.7%, respectively.
• Foreign carriers with dominant positions such as Turkcell (56% of the mobile subscribers in Turkey), and New Zealand Telecom (NYSE: NZT  ) , the former landline monopolist that also has 45% market share in the mobile market. Yields of 4% and 8.7%, respectively.

The biggest dividend yield does not the best dividend play make. No, we care about the sustainability of that dividend and the prospects of the company as a whole. Using five short-of-scientific-but-carefully chosen criteria, let's determine which of these dividend plays (one from each type) -- Verizon, Frontier, or Turkcell -- is the best buy.

Round 1: Balance sheet
From both a debt-to-equity standpoint and an interest coverage from earnings before interest and taxes standpoint, Turkcell is the winner here. Its heavy spending on capital expenditures causes its trailing free cash flow to be well below its net income, though. The quality of those investments is something to keep an eye on. Frontier took on a lot of debt to finance its recent deal for some of Verizon's rural assets (the deal triples Frontier's size!), but since it also floated a lot of stock, its debt-to-equity ratio is technically strengthened.
Rank: 1) Turkcell, 2) Verizon, 3) Frontier.

Round 2: Operations
For operations, let's look at operating margins. Here, Frontier is the leader of the pack with trailing margins of 33% (vs. 20% for Turkcell and 17% for Verizon). We'll give Frontier the nod for now, but it faces a huge operational challenges in incorporating the Verizon assets profitably.
Rank: 1) Frontier, 2) Turkcell, 3) Verizon.

Round 3: Safest bet
Verizon will suffer in the next category (sexiest bet), but its size, its entrenchment in the U.S. market, and its easy coverage of its dividend with its free cash flow give it the upper hand here. Turkcell's trailing free cash flow actually doesn't cover its dividend, but it has a net cash position.
Rank: 1) Verizon, 2) Turkcell, 3) Frontier.

Round 4: Sexiest bet
Few things are more boring than rural telecom. A growth industry it ain't. However, Frontier's bold consolidation move and 9.8% dividend yield boost it ahead of the foreign play, Turkcell, and its 4% dividend yield.
Rank: 1) Frontier, 2) Turkcell, 3) Verizon.

Round 5: CAPS rating
Our CAPS community is most bullish on Turkcell, which garners a five-star rating (out of five). Verizon is right behind with four stars and the community gives Frontier a mixed three stars.
Rank: 1) Turkcell, 2) Verizon, 3) Frontier.

The summary rankings

Category	Verizon	Frontier	Turkcell
Balance sheet	2	3	1
Operations	3	1	2
Safest bet	1	3	2
Sexiest bet	3	1	2
CAPS rating	2	3	1
Average finish	2.2	2.2	1.6

Turkcell takes the victory in this battle, with Verizon and Frontier tying for runner-up. However, I believe all of these companies deserve a second look depending on what you're looking for. Although they're all in the telecom space, they offer quite different value propositions in terms of growth, risk, and yield.

But what do you think? Declare your winner in the poll below, and then share your thoughts in the comments box below the poll.