Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



Big Dividends, Big Risk?

Don't let it get away!

Keep track of the stocks that matter to you.

Help yourself with the Fool's FREE and easy new watchlist service today.

Last week, Motley Fool Income Investor James Early told me about one oil stock that could produce big returns. In this week's installment, James shares his thoughts on two of the country's biggest dividend payers and explains why investors shouldn't focus too much on big yields.

Mac Greer: OK, James. The three highest-yielding stocks in the S&P 500 are rural telecoms -- Frontier Communications (NYSE: FTR  ) , Windstream (NYSE: WIN  ) , and CenturyLink (NYSE: CTL  ) .  Why?

James Early: Rural telecom is a declining business, kept alive partially from surcharges paid by city slickers like you and me. Yet these companies have paid-for infrastructure and cash flow from existing -- if fewer -- customers. Because they generate cash but don't grow (barring acquisition), much of your return comes as a dividend.

Greer: OK, James. Let's talk about a couple of those telecoms. Frontier Communications currently pays a dividend of 9.87%.  Windstream pays a dividend of 8.83%. Which do you like better?

Early: I'd avoid Frontier. Frontier itself was a solid $2.2 billion rural telecom that spent $8.8 billion to buy Verizon's (NYSE: VZ  ) rural lines. This tripled its lines, but Verizon has a history of unloading its junk onto unsuspecting buyers: Hawaiian Telcom had to file for bankruptcy shortly after the Carlyle Group bought it from Verizon, and rural telecom Fairpoint (NYSE: FRP  ) nearly went bankrupt trying to digest Verizon's northeastern rural lines, which it bought in 2008. Come to find out, the lines Verizon sold Frontier have lower margins, faster customer loss, and lower penetration rates than Frontier's lines. I'm not terribly bullish on U.S. rural telecom long term, but if you want the yield, I'd go with Windstream.

Greer: My final and only tangentially related question. I'm a satisfied Verizon customer, but I want to ditch my Blackberry. Do I go with one of the new Droid phones (and keep Verizon) or do I wait on the iPhone and the long-mentioned Verizon/Apple (Nasdaq: AAPL  ) partnership?

Early: You're opening a can of worms and you know it. Rumor has it that Apple will debut its Verizon iPhone in January 2011, so if you're OK with that, it comes down to phone functionality, and whether you want a working antenna. I'm a Mac fan in general, but Droids have been taking market share and are probably going to be better phones hardware-wise, though Apple will still kill on apps.

Want more? James thinks an Apple dividend could produce big returns for shareholders.

And Motley Fool Hidden Gems analyst Jeremy Meyers kicks the tires on some telecoms and says dividends aren't enough.

Apple is a Stock Advisor selection. Neither Mac nor James owns any of the stocks discussed. Try any of our Foolish newsletters today, free for 30 days. The Motley Fool has a disclosure policy.   

Read/Post Comments (1) | Recommend This Article (7)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On August 24, 2010, at 9:03 AM, Stocklovr wrote:

    "Verizon has a history of unloading its junk onto unsuspecting buyers..." - really? I don't think it's fair to call previously successful businesses "unsuspecting buyers". In all cases, they went into the deal like every other acquirer. If they didn't think it was a good deal or they didn't do the proper due dilligence, then they should not have made the deal. That certainly is not Verizon's fault!

    These spin-offs ALL required federal and state regulatory approval but nobody says that they dropped the ball either.

    Regarding the Frontier deal - Verizon setup essentially a fully functional spin off business - staffed with experienced Verizon employees and running essentially in tandem with it's own operations - until the actual split. Those employees now work for Frontier and the operations are still fully functional. If Frontier can't make that business model work, then that too, is not Verizon's fault.

    In short, I think it's a cheap shot to say that Verizon was "unloading its junk onto unsuspecting buyers".

    Slvr - Long VZ

Add your comment.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 1278448, ~/Articles/ArticleHandler.aspx, 10/22/2016 9:47:38 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 12 hours ago Sponsored by:
DOW 18,145.71 -16.64 -0.09%
S&P 500 2,141.16 -0.18 -0.01%
NASD 5,257.40 15.57 0.30%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

10/21/2016 4:00 PM
AAPL $116.60 Down -0.46 -0.39%
Apple CAPS Rating: ****
CTL $28.21 Up +0.24 +0.86%
CenturyLink CAPS Rating: **
FRP.DL2 $0.37 Down +0.00 +0.00%
Fairpoint Communic… CAPS Rating: **
FTR $4.07 Down -0.02 -0.49%
Frontier Communica… CAPS Rating: ***
VZ $48.20 Down -0.94 -1.91%
Verizon Communicat… CAPS Rating: ****