Calling Big Dividends and Great Growth Potential

Watch stocks you care about

The single, easiest way to keep track of all the stocks that matter...

Your own personalized stock watchlist!

It's a 100% FREE Motley Fool service...

Click Here Now

Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you'd like to add some telecom services companies to your portfolio, the Vanguard Telecom Services ETF (NYSE: VOX  ) could save you a lot of trouble. Instead of trying to figure out which companies will perform best, you can use this ETF to invest in lots of them simultaneously.

The basics
ETFs often sport lower expense ratios than their mutual fund cousins. The Vanguard ETF's expense ratio -- its annual fee -- is a very low 0.19%. (Vanguard is known for its low fees.) It yields about 2.8%, as well.

This ETF has performed well, beating the world market handily over the past three and five years. As with most investments, of course, we can't expect outstanding performances in every quarter or year. Investors with conviction need to wait for their holdings to deliver.

Why telecom services?
A big smartphone revolution is under way, with tablets and other new electronic devices proliferating, as well. All this bodes well for the telecom industry that serves these items that many of us can no longer live without.

More than a handful of telecom companies had strong performances over the past year. Wireless broadband provider Clearwire  (Nasdaq: CLWR  ) gained 18%, for example. It made some regrettable bets on a WiMAX 4G standard, and also has a hefty debt load (recently more than $4 billion) that has been growing in the past few years. The company is looking to sell some of its spectrum to help pay it down. On the plus side, it renegotiated a deal with Sprint Nextel  (NYSE: S  ) and is making sure its new LTE standards are compatible with offerings in China. The company's surging share count is worrisome, though, as it dilutes the value of existing shares.

Plenty of telecom companies didn't do as well last year, but could see their fortunes change in the coming years. Windstream (Nasdaq: WIN  ) , for example, shed 23% over the past year, recently hitting a 52-week low, while fellow rural telecom services provider Frontier Communications (Nasdaq: FTR  ) lost 9%. Windstream recently lowered its projections and, with its free cash flow less than its payout, its massive 12.2% dividend yield seems threatened. Meanwhile, revenue has been growing, while net income has been shrinking.

Frontier posted a reasonably solid quarter recently, with revenue coming in a bit higher than expected, though free cash flow shrank. It, too, offers a tantalizing dividend yield, above 9%, though, as my colleague Rick Munarriz reminds us, steep yields bear close watching.

Level 3 Communications (NYSE: LVLT  ) , long burdened with a mountain of debt, shrank by 10% over the past year. (It dropped by as much as 10% in a single day last month, too, after reporting disappointing earnings.) The company is expanding its services around the world -- for example, boosting its video broadcasting in Latin America. Many investors are steering clear, though, not liking its falling free cash flow or lack of a dividend. Even analysts are split, with some liking its increased bookings, and others seeing it headed downward.

The big picture
Demand for telecom services isn't going away anytime soon. A well-chosen ETF can grant you instant diversification across any industry or group of companies -- and make investing in and profiting from it that much easier.

When it comes to dividend yields, you won't find many higher than Frontier Communications. While its juicy dividend is tempting, every Frontier investor has to understand that it's not a sure thing. A huge acquisition has transformed the company forever. Will the move bear fruit, or are investors destined for another disappointing dividend cut? In this premium research report on Frontier Communications, we walk you through all of the key opportunities and threats facing the company. Better yet, you'll receive a full year of updates to boot. Click here to learn more.

Read/Post Comments (0) | Recommend This Article (3)

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.

Be the first one to comment on this article.

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: 2118017, ~/Articles/ArticleHandler.aspx, 10/26/2016 9:12:08 PM

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 Moments ago Sponsored by:
DOW 18,199.33 30.06 0.17%
S&P 500 2,139.43 -3.73 -0.17%
NASD 5,250.27 -33.13 -0.63%

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

12/31/1969 7:00 PM
CLWR.DL $0.00 Down +0.00 +0.00%
Clearwire Corp CAPS Rating: **
FTR $4.09 Down -0.02 -0.49%
Frontier Communica… CAPS Rating: ***
LVLT $46.92 Up +0.02 +0.04%
Level 3 Communicat… CAPS Rating: ***
S $6.36 Down -0.14 -2.15%
Sprint CAPS Rating: **
VOX $90.48 Down -0.43 -0.47%
Vanguard Telecommu… CAPS Rating: No stars
WIN $8.17 Down -0.07 -0.85%
Windstream CAPS Rating: **