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Most investors don't keep tabs on their companies' fundamental values. That's a mistake. If you take the time to read past the headlines and crack a filing now and then, you're in a much better position to spot potential trouble early. Better yet, you'll improve your odds of finding the underappreciated home-run stocks that provide the market's best returns.
We can help you keep tabs on your companies with MyWatchlist.com, our free, personalized stock-tracking service. Here are three dividend stocks for your watchlist.
1. Frontier Communications (NYSE: FTR )
Similar to Windstream (Nasdaq: WIN ) and CenturyLink (NYSE: CTL ) , Frontier Communications is a wireline company, with operations across 27 states. What makes Frontier special is that in 2010 it acquired Verizon's (Nasdaq: VZ ) wireline operations, nearly tripling the size of its operations. To make the acquisition, Frontier cut its dividend 25% and took on a large debt load. The acquisition added a tremendous amount of assets, which come with large depreciation charges. These make Frontier's 10% dividend yield look unsustainable from an earnings standpoint, but they don't tell the whole story. Frontier is generating mounds of cash that more than cover the dividend.
The company also uses the cash to reinvest in expanding broadband access to rural areas and to pay off its debt. As the company's debt load decreases, it can put the savings toward increasing its dividend to its previous level and beyond. This is a stock I own and believe is worth following, and it reports earnings on Wednesday.
- Add Frontier Communications to your watchlist.
2. CAPS' Weekly Top Stock Idea: Telefonica (NYSE: TEF )
Each week, I cull a top stock idea from the pitches on CAPS, The Motley Fool's 180,000-member free investing community. Telefonica, a pick from last year, caught my eye, since its shares have fallen the past three months over concerns about weakness in Europe. Telefonica, along with fellow international telecom France Telecom (NYSE: FTE ) , is focused on telecom operations around the world. The company has significant holdings in its home country of Spain and the rest of Europe, but Latin America contributes the most to Telefonica's revenue. Concerns over Spain have held Telefonica's stock down, raising the company's yield to a high 7.7%.
The market is discounting the firm's Latin American operations and the growth these can provide. Over the past three years, Telefonica's dividend has grown at a CAGR of 23%. See the pitch selected for CAPS' weekly top stock idea. If you want to follow my weekly picks, you can subscribe to the series' RSS feed or follow it on Twitter.
- Add Telefonica to your watchlist.
3. Vodafone (Nasdaq: VOD )
Vodafone is a British telecom company with a yield of more than 5%. Like Telefonica, it has significant operations outside its home country, most notably a 45% stake in Verizon Wireless (Verizon owns the rest). In the past, the joint venture partners had agreed that all Verizon Wireless' excess cash should go toward paying off the company's debt. The debt is now paid off, and last Thursday, Vodafone announced that Verizon Wireless would make its first dividend payment in years to its parents on Jan. 31, 2012. These payments will allow Verizon to pay off its own debt and fund more investments. Vodafone plans on using its $4.5 billion to pay down a billion dollars of debt and then pay out the rest as a dividend. The increased dividend should have the market revalue the shares upwards -- certainly worth watching.
- Add Vodafone to your watchlist.
My Foolish bottom line
Consider the three stocks above along with the 13 names in a free report from The Motley Fool's expert analysts, "13 High-Yielding Stocks to Buy Today." A senior retail analyst dubbed one of the picks as "the dividend play of a lifetime." Tens of thousands have requested access to this report, and today I invite you to download it at no cost to you. To get instant access to the names of these 13 high-yielders, simply click here -- it's free.