Dividends often don’t get the respect they deserve, especially from beginning investors. That’s because a dividend stock’s yearly 3% or 5% yield may not seem impressive alongside yearly capital gains of 10%, 20% or 30% or more.
Yet dividends are far more reliable than capital gains. So with today’s low interest rates, investors are paying more attention to dividend yields (a company’s total annual dividends paid per share divided by the current stock price). That’s why the high dividend yield of a company like Bell Aliant stands out.
BELL ALIANT INC. (Toronto symbol BA; www.aliant.ca) sells telephone and Internet services to 2.5 million customers in Atlantic Canada and rural parts of Ontario and Quebec. The company also sells wireless services through an alliance with BCE, which owns 45% of Bell Aliant.
The company faces strong competition from cable providers. In addition, many of its phone customers are switching to wireless devices. However, Bell Aliant’s wireless agreement with BCE, plus upgrades to its high-speed Internet network, are helping it hold on to its current clients and attract new ones.
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Restructuring is key factor in higher earnings for Bell Aliant
Bell Aliant’s high-speed fibre optic systems now reach 621,000 homes. The company plans to increase that to 650,000 by the end of 2012.
In the quarter ended September 30, 2012, Bell Aliant’s revenue fell 0.4%, to $697.4 million from $700.2 million a year earlier. Revenue from local phone services fell 5.0%, while long-distance revenue declined 12.0%.
Even with the lower revenue, Bell Aliant earned $0.47 a share in the latest quarter. That’s up 14.6% from $0.41 a share. The higher earnings were partly due to savings from a recent restructuring, which mainly consisted of job cuts.
The company pays a quarterly dividend of $0.475 a share, for a high annualized yield of 7.0%.
In the latest issue of Canadian Wealth Advisor, we look at whether gains from wireless and high-speed Internet services are enough to offset revenue losses for Bell Aliant in local and long-distance phone services. We also assess whether the company can sustain its current dividend. We conclude with our clear buy-hold-sell advice on this stock.
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Is dividend yield an important factor for you when you are looking to buy stocks? How high does the yield have to be to give you an attractive reason to buy? Have you ever avoided stocks because you thought the yield was too high to be sustainable? Let us know what you think.
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