Forget the necktie -- give Dad something he can really use this year. We're serving up plenty of Foolish ideas to help you out.
It's always tough to find a stock you'd be willing to recommend to family. Often, the "Would you recommend this for your grandma?" acid test represents the highest bar for recommending stocks to anyone. But I'd give my Dad an even higher bar for quality investments -- those companies that are built on strong management showing good execution, and then returning value created to shareholders through dividends.
When I look at the stock landscape, I see one company that I'd say is right for my Dad (and it sure beats another necktie). I think Motley Fool Income Investor recommendation Citizens Communications (NYSE:CZN) would be a good addition to the portfolio of any Dad looking for strong income at a reasonable value.
Meeting the Citizens
Citizens provides telecommunications services such as wireline and DSL predominately in underserved rural markets, avoiding the more intense competition of major markets served by incumbents such as AT&T (NYSE:T) and Verizon (NYSE:VZ).
With its focus on rural markets, Citizens Communications lacks many things, such as a hyper-growth market, international reach, and a lineup of iPod accessories. That's OK, because I doubt my Dad would appreciate any iPod-related buzz anyway. But the company more than makes up for these things with its strong management execution and attention to the finer details of a competitive telecommunications market in the U.S.
The valuation
Always on the lookout for a good deal, I know my Dad would appreciate the other thing Citizens lacks -- a premium valuation. Because the company doesn't have exciting consumer products in a buzzing industry, investors are not chasing this stock into the future by bidding it up unreasonably. At a current price of $15.20, the stock is still below a discounted cash flow analysis I did two months back that values the company at around $16 to $17 per share.
Though Citizens has seen its fair share of turmoil throughout its corporate life, it seems to have settled into a groove in the past few years. After unsuccessfully operating as a diversified utility company, Citizens secured a new CEO and new plan that included divesting all of its assets, save the telecommunications business. New CEO Maggie Wilderotter has had a few years at the helm now and, so far, has shown strong operating improvements in the business. For instance, the company has steadily grown its normalized net margin up to 12.7%, above that of fellow telecoms Embarq (NYSE:EQ), Cincinnati Bell (NYSE:CBB), and Qwest Communications (NYSE:Q).
Returning Dad cash
The performance of the new company, now well into its turnaround, should give Dads confidence in a trustworthy management team that is looking out for the interests of its shareholders. This focus on shareholder returns shows in Citizens' hearty-sized 6.6% dividend yield. With an early completion of its recent merger with Commonwealth Telephone, the company boosted its cash flow estimate for 2007 to $500 million to $520 million, giving more confidence that the company's efficient structure can compete in the brutal telecommunications space.
So while some investors might go for the glitz and buy Dad an iPod, I think a sector sporting little growth can still hold great things for Dads. A company low on hype but high on results like Citizens Communications is the kind of stock all Dads -- young and old -- would appreciate having as part of their portfolios.
For more Foolish insight:
- Stocks That Pay You to Retire
- Fantastic? No. Respectable? Yes.
- Foolish Forecast: Citizens Communications' Margin Magic
Citizens Communications is a Motley Fool Income Investor selection. To see what other dividend-paying stocks will put cash in your pocket, take a free 30-day trial.
Fool contributor Dave Mock thinks the best things do indeed come in small packages. He owns no shares of companies mentioned here. Dave is the author of The Qualcomm Equation. Not one for fluff, the Fool's disclosure policy is always big on results.
