When phone giant and Motley Fool Stock Advisor recommendation SBC Communications (NYSE:SBC) reported second-quarter results today, it marked its fifth consecutive quarter of revenue growth.
Revenue was up a modest 1.3% over the year-ago quarter. Excluding charges from Cingular Wireless' merger, and amortization costs, and SBC ending agreements with WilTel Communications, earnings per share were up a nickel to $0.43. Operating margins, excluding charges, improved by 0.3% to 17%.
Cingular's results were a bright spot -- the company is 60% owned by SBC and 40% owned by BellSouth (NYSE:BLS). Revenue was up a modest 4.6%, but operating income, excluding several one-time and acquisition-related charges, increased to $1.2 billion from $705 million in the first quarter.
Other positive numbers from SBC included an increase in data revenue and increased connections for DSL, long distance, and consumer retail customers.
The company's acquisition of AT&T (NYSE:T) is still on track to close late this year.
When Motley Fool co-founder David Gardner selected SBC for Stock Advisor in April 2004, he was not looking for a rapid grower. What he saw was a company making the transition from a wireline business whose stock price was half of what it was five years before -- with very interesting investments in its future.
SBC owns 60% of the largest U.S. wireless carrier, is No. 1 in DSL connections, and has a $500 million partnership with satellite TV provider EchoStar (NASDAQ:DISH) that spawned the SBC DISH Network. Ah, and don't overlook the company's big dividend, now yielding 5.4%.
David's timing was great; the company was starting its string of revenue gains. What's not so great is the 1.3% drop in the stock price since the recommendation.
Conservative investors, especially those looking for dividends to make up a healthy part of their total return, should look carefully at SBC. Analysts expect the company to compound earnings at 6% a year for the next five years. That's well short of the 10.6% compounding they expect from the Standard & Poor's 500. But add in that 5.4% dividend, and the potential total return is very tempting.
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Fool contributor W.D. Crotty owns shares in SBC. Click here to see The Motley Fool's disclosure policy .
