verizon

Verizon Communications Inc., symbol VZ on New York, owns 55% of Verizon Wireless, which is the largest wireless provider in the U.S.; U.K.-based Vodafone plc owns the other 45%. This business has 104 million customers in 50 states, and accounts for 63% of Verizon’s revenue. The remaining 37% comes from its wireline division, which sells local and long-distance telephone service to over 25 million customers in 28 states. The high dividend stock’s annual payout rate is $1.95 a share, for a yield of 5.2%. In the three months ended March 31, 2011, Verizon earned $0.51 per share, up 218.8% from $0.16 a year earlier. If you exclude costs related to the spinoff of a subsidiary and other unusual items in the year-earlier quarter, earnings per share would have risen 6.3%. Sales rose just 0.3%, to $27.0 billion from $26.9 billion a year earlier....

AT&T, symbol T on New York, was the exclusive U.S. carrier for the Apple iPhone, until Verizon started selling it in February. However, AT&T is rapidly upgrading its wireless networks, which should help it hang on to its current iPhone customers. Despite iPhone competition from Verizon, AT&T still activated nearly 3.6 million iPhones in the first quarter, with 23% of those being new customers for AT&T. In all, it sold 5.5 million smartphones in the quarter. Besides the iPhone, AT&T is benefiting from rising use of other wireless devices, such as the iPad and electronic-book readers. The company added 2 million wireless customers in the quarter, and now has 97.5 million....

Bridgewater Systems Corp., $8.35, symbol BWC on Toronto (Shares outstanding: 24.9 million; Market cap: $208.1 million; www.bridgewatersystems.com), makes software that helps wireless carriers better manage voice and data traffic on their networks. That makes their networks more efficient, and improves network security. Bridgewater also believes that its products help its clients increase their revenue. That’s because Bridgewater’s software lets users offer pricing plans linked to bandwidth usage, instead of unlimited, flat-rate plans. As well, by optimizing their network traffic, carriers can more easily offer more services to their wireless customers. Bridgewater has over 150 customers in 30 countries. It gets 90% of its revenue from outside Canada....

MacDonald, Dettwiler and Associates, $55.01, symbol MDA on Toronto (Shares outstanding: 41.4 million; Market cap: $2.3 billion; www.mdacorporation.com), has sold its Information Products business (excluding Geospatial Services) to TPG Capital for $850 million. The company has also started paying a twice-yearly dividend of $0.50 a share, for a 1.8% yield. MacDonald Dettwiler’s space and defence contracts are heavily dependent on U.S. and Canadian government spending. That adds risk. The stock is up 47.1% over the last year, and now trades at a 23.9 times the $2.30 a share that the company is forecast to earn this year. MacDonald Dettwiler is okay to hold, but only for aggressive investors....

These two phone companies have limited growth prospects. But their high dividends seem safe for now. FRONTIER COMMUNICATIONS CORP. $8.03 (New York symbol FTR; Income Portfolio, Utilities sector; Shares outstanding: 993.8 million; Market cap: $8.0 billion; Price-to-sales ratio: 2.1; Dividend yield: 9.3%; TSINetwork Rating: Average; www.frontier.com) sells Internet and traditional phone services to 7.4 million customers in 27 states. Its clients are mainly in rural and suburban areas. The company took its current form in July 2010 when it acquired 4 million traditional phone customers from Verizon Communications Inc. (also in this issue). In return, Verizon shareholders received 0.24 shares of Frontier for each Verizon share they held. That gave them 68% of Frontier. If you assume the transaction occurred at the start of 2009, Frontier’s revenue would have fallen 6.9%, to $5.65 billion in 2010 from $6.1 billion in 2009. If you exclude one-time items, such as costs to integrate the Verizon accounts, earnings fell 25.2%, to $324 million, or $0.33 a share, from $433 million, or $0.44....

VERIZON COMMUNICATIONS INC. $37 (New York symbol VZ, Conservative Growth Portfolio, Utilities sector; Shares outstanding: 2.8 billion; Market cap: $103.6 billion; Price-to-sales ratio: 1.0; Dividend yield: 5.3%; TSINetwork Rating: Average; www.verizon.com) is buying Terremark Worldwide Inc. (Nasdaq symbol TMRK), which provides data-storage services in the U.S., Europe and Latin America. The $1.4-billion price is just 4% of Verizon’s 2010 cash flow of $35.3 billion. It aims to complete the purchase in April 2011. Terremark will help Verizon take advantage of growing demand for cloud computing. That’s where data and software are kept on one or more centralized servers. Users connect to these servers over the Internet through a variety of devices. Verizon is a buy.

HEWLETT-PACKARD CO. $42 (New York symbol HPQ; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 2.2 billion; Market cap: $92.4 billion; Price-to-sales ratio: 0.7; Dividend yield: 1.1%; TSINetwork Rating: Above Average; www.hp.com) has raised its quarterly dividend by 50.0%, to $0.12 a share from $0.08. The new annual rate of $0.48 yields 1.1%. Like Verizon (later in this issue), Hewlett plans to grow by aggressively expanding into cloud computing. Hewlett will aim its cloud-computing products at smaller businesses, instead of big corporate and government clients. That way, it will avoid directly competing with larger companies like IBM (also in this issue). Hewlett will also let software developers use its new cloud-computing platform to test and secure their programs, and sell them to businesses and consumers. This new platform will also help Hewlett sell more of its own software....

DragonWave Inc., $7.88, symbol DWI on Toronto (Shares outstanding: 35.1 million; Market cap: $276.7 million; www.dragonwaveinc.com), makes equipment that wirelessly transmits broadband voice, video and other data. This lets customers send and receive data in locations that fibre-optic telecommunication networks have not yet reached. DragonWave first sold shares to the public for $3.95 each, and began trading in April 2007. As of November 30, 2010, it held cash of $95 million, or $2.71 a share, and had no debt. The company gets around 50% of its revenue from U.S.-based Clearwire Corp. (symbol CLWR on Nasdaq). Clearwire bought less equipment from DragonWave in the three months ended November 30, 2010. As a result, DragonWave’s revenue fell 47.7% in the quarter, to $27.0 million from $51.6 million a year earlier (all figures except share price and market cap in U.S. dollars). The company lost $50,000, or nil per share, compared to a profit of $11.6 million, or $0.36 a share, a year earlier....

YUM! BRANDS INC. $48 (New York symbol YUM; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 468.6 million; Market cap: $22.5 billion; Price-to-sales ratio: 2.0; Dividend yield: 2.1%; TSINetwork Rating: Average; www.yum.com) plans to sell its A&W (hamburgers) and Long John Silver’s (seafood) restaurant chains. Together, these businesses account for about 1% of Yum’s sales. Selling these operations would let Yum focus on its three remaining chains: KFC (fried chicken), Pizza Hut and Taco Bell (Mexican food). These brands are easier to expand internationally than A&W and Long John Silver’s, which mainly operate in the U.S. The company feels its international operations will supply 75% of its earnings in 2015, up from 65% in 2010. Yum Brands is a buy....

PLEASE NOTE: Next week, Stock Pickers Digest, our newsletter for aggressive investors, will reveal its #1 pick for 2011. If you’re not already a Stock Pickers Digest subscriber, click here to learn how you can get one month—including the Stock Pickers Digest Stock of the Year—FREE. VERIZON COMMUNICATIONS INC., $35.46, New York symbol VZ, announced this week that it had signed a new multi-year deal with APPLE INC., $348.48, Nasdaq symbol AAPL. The agreement will let Verizon sell Apple’s hugely popular iPhone 4 smartphone, starting in February 2011. The deal should help both companies. Adding the iPhone will help Verizon compete with AT&T (see below), which until now had been the exclusive U.S. iPhone carrier....