For all that we've said about dividends here at the Motley Fool, it can still be difficult to select dividend payers for your portfolio. Let's take a closer look at some telecommunications companies, which can be a crucial part of a dividend portfolio, and analyze both their dividend policies and their commitment to implementing those policies. In the process, you may pick up a few useful strategies for evaluating high-yielding stocks.

Meet our telecom players
To simplify the process, we'll look at six semi-randomly selected contestants among high-yielding telecommunications companies. The table below displays their year-to-date, dividend-adjusted returns, as well their current dividend yields:


Total Return (YTD)

Dividend Yield




Chunghwa Telecom (NYSE: CHT)



Telefonica S.A. (NYSE: TEF)



Frontier Communications (NYSE: FTR)



France Telecom S.A. (NYSE: FTE)



CenturyLink (NYSE: CTL)



Let's discuss dividend policies
Now that we're familiar with the performance and dividend yields of these telecommunication stocks, we need to know how each company's management intends to return future cash earnings to stock owners.

In its latest annual report, AT&T states: "Our dividend policy considers both the expectations and requirements of stockholders, internal requirements of AT&T and long-term growth opportunities." This may not give shareholders an exact dollar estimate of dividends, but at least it affirms a commitment to pay them.

Chunghwa Telecom has no stated dividend policy. However, Chairman Lu Shyue-ching recently stated that his company will have a "dividend payout that is good for everyone." Don't assume that Chunghwa has dividend commitment anxiety; as we'll discuss below, that's not the case.

In contrast to the vague dividend policies of AT&T and Chunghwa, last year Telefonica S.A. announced its intention to pay a dividend of 1.40 euro per share in 2010, and to increase this to a minimum of 1.75 euro per share by 2012. After acquiring Verizon's local operations in 14 states, Frontier Communications recently announced a new dividend policy, setting an annual payout of $0.75 per share. These policies give us easy benchmarks against which to measure these companies' actual payout performance.

Meanwhile, France Telecom S.A. has a stated dividend policy of paying out between 40%-45% of its organic (pre-acquisition) cash flow to shareholders. Although this isn't as specific as the guidance Telefonica and Frontier provide, it's less hazy than Chunghwa and AT&T's.

Finally, while CenturyLink states that it plans to maintain its current dividend practice, it also provides no guidance on its future dividend intentions, thus joining Chunghwa and AT&T in our dividend doghouse. Bear in mind that given its upcoming megamerger with Qwest, CenturyLink might have to be more conservative with payouts if integrating the two companies costs more than expected.

Fools should always prefer clearly stated policies to ambiguous ones. Still, dividend policies aren't worth the paper they're written on without real performance to support them. Let's examine what these firms have actually done with their dividends, versus what they're telling their investors.

Show me the money
We'll start with the telecoms that seem to fear dividend commitment: AT&T, CenturyLink, and Chunghwa. These companies apparently believe that actions speak louder than words. All three have shown a commitment to paying dividends, and AT&T and CenturyLink have consistently increased them. However, their lack of dividend policy makes predicting future payouts tricky.

Among companies with stated policies, Telefonica seems to be falling short of its goals.  It's only paid out 1.30 euro per share to date, and it's unlikely to make any more distributions this year.

Frontier Communications recently ratcheted back its dividend rate to $0.1875 per quarter. Since it's maintained an annual dividend of $1 per year for the last three years, it should be able to live up to the metrics in its dividend policy -- as long as its latest merger isn't a disaster.

France Telecom landed at the top end of its target payout range last year. However, its payout is based on cash flow, which can be difficult to predict. That leaves its shareholders more in the dark than owners of Telefonica or Frontier.

Investing ramifications
Between dividend policies and actual results, Frontier Communications looks like the best dividend play for this group. It's proved that it can follow through on its clearly stated policy. Its sizable payout isn't infallible, but at least Frontier displays the consistency and transparency that investors should seek when appraising dividend stocks.