With savings accounts and Treasuries barely yielding sufficient interest, there has been a renewed interest in dividend stocks as of late.

Investors know that historically, dividend stocks have outperformed their non-paying brethren, and that along with that nice cash cushion is the potential for capital appreciation as well. One of the old-school classes of dividend payers are telecom companies -- they typically have gobs of free cash flow and hence can afford to shell out nice payments to shareholders.

Foreign telecoms have seen their share prices dip lately, mostly due to the EU debacle, so some of their yields have reached new and impressive heights. In order to find the seven most impressive telecoms, I ran a screen for companies with a market cap above $2 billion, dividend yields above 2.5%, and price-to-earnings multiples below 15 (in order to ensure good value).

I've listed the top seven stocks below in rank order, in addition to including their CAPS rating, which utilizes the intelligence of our 165,000-person investing community. Here are the results:


Dividend Yield

P/E Multiple

CAPS Rating
(out of 5)

Cellcom Israel (NYSE: CEL)




Telecomunicacoes de Sao Paulo (NYSE: TSP)




Telecom Corp. of New Zealand (NYSE: NZT)




Philippine Long Distance Telephone (NYSE: PHI)




CenturyLink (NYSE: CTL)




Hellenic Telecommunications (NYSE: OTE)




Telefonica (NYSE: TEF)




Source: Capital IQ, a division of Standard & Poor's; CAPS.

Not all treated the same
Dividend stocks are a great addition to one's portfolio. However, you have to be careful about how you allocate them. They shouldn't necessarily take the place of bonds because dividend stocks can either (a) discontinue their dividend, or (b) the company's share price can depreciate over time. One of the most important things you can do is look at a company's payout ratio, which tells you what percentage of its net income it is paying out in dividends.

Another reasonable way to check out dividend consistency is to look at the company's past record: How many times has it increased it? How many times has it had to cut it? For instance, companies like Procter & Gamble and Eli Lilly have been paying shareholders for decades and have been able to increase those payouts for 40-plus years, consecutively! Now that is what I call consistency.

So check out the seven telecoms above; they're all trading reasonably, are sporting above-average yields, and are ranked favorably by our CAPS community.

Jordan DiPietro owns shares of Telefonica. Cellcom Israel is a Motley Fool Global Gains recommendation. Procter & Gamble and Philippine Long Distance Telephone are Motley Fool Income Investor picks. The Fool owns shares of and has written covered calls on Procter & Gamble. Try any of our Foolish newsletters today, free for 30 days. The Motley Fool has a disclosure policy.