Hold This Spin-off For Its High Yield

Article Excerpt

VERIZON COMMUNICATIONS INC. $35 (New York symbol VZ, Conservative Growth Portfolio, Utilities sector; WSSF Rating: Average) has spun off its directories business as a separate company called IDEARC INC. $29 (New York symbol IAR; Income Portfolio, Consumer sector; WSSF Rating: Average). Idearc publishes over 1,200 yellow pages and white pages directories in 35 states. It also owns SuperPages.com, a major online directory service. Verizon investors received a special dividend of one common share of Idearc for every 20 shares held. Stockholders will only be liable for capital gains taxes when they sell they new shares. We think the spin-off makes sense for Verizon. Directories generate stable cash flow, but revenue growth has slowed due to heavy competition from online search engines. Rising paper and transportation costs have also hurt Idearc’s profits. Idearc accounts for just 4% of Verizon’s revenue, but has assumed 22% of Verizon’s long-term debt. However, the high debt burden should not hurt Idearc’s plan to pay annual dividends of $1.37 a..

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