Friday, May 23, 2008

More Dividends

The series on small-cap dividend plays continues with four more ideas….

Sorting out high dividend-yielding stocks by their ability to generate cash and consistency in paying dividends turned up three names in telecommunications services and one big surprise in an unlikely industry.

Hickory Tech Corp. (HTCO: Nasdaq) pays a $0.48 dividends yielding 5.8% at the current price level. The company operates local exchange carriers and provides data services to the telecom industry. An array of residential and business solutions, including broadband Internet and digital television, is helping to keep Hickory competitive. Trailing 12-month sales were $15.6 million on which Hickory earned a 6.7% net margin. Over the last five years Hickory has averaged a 28.4% conversion of sales to operating cash flow. Dividends have grown at a compound annual growth rate of 5% over the past five years. Clinching the stock as a solid dividend play is a beta of 0.50.

Alaska Communications Systems Group, Inc. (ALSK: Nasdaq) has much the same profile as Hickory. The company provides wireline and wireless services in Alaska, generating $390.9 million in sales and $142.6 million in net profit in the last twelve months. Alaska’s five-year cash conversion rate is 21.5%. Dividend yield for ALSK shares is 7.6% at the current price level makes the stock look attractive despite a lofty price earnings ratio of 26.2 times the consensus estimate for 2008.

The next name on the list is yet a third telecom, Warwick Valley Telecom (WWVY: Nasdaq), which provides local, long distance and network access services in the states of New York and New Jersey. Warwick is a relatively small operation with a sales run rate of $24.0 million. However, a consistent history of paying dividends and a strong cash conversion ratio of 42.9% over the last five years put it among the top-five on our list. The dividend yield on WWVY is 6.7%.

Our screening and ranking efforts yielded one big surprise - a publishing company. Lee Enterprises (LEE: NYSE) is a publisher of news and advertising publications in midsize markets. Lee publishes 50 daily newspapers, 300 weekly newspapers and specialty publications in 23 states. Sales in the trailing 12-month period were $1.1 billion on which Lee posted a net loss of $649 million. In the March 2008 quarter Lee recorded a $931.4 million non-cash charge related to the impairment of goodwill and intangibles. Otherwise Lee has been consistently profitable for the last ten years. Lee’s ability to convert sales to cash has averaged 18.5% over the last five years. The newspaper industry has been under considerable pressure from rising costs and competing media, but Lee is reporting increasing readership for its local content publications. A dividend yield of 10.7% at the current price level makes the stock very appealing even for the print industry.

As with Nordic American Tanker Shipping Ltd. (NAT: NYSE) profiled in the May 22nd post “In for the Long Haul,” options are available for LEE and ALSK to protect positions on the downside.


Neither the author of the Small Cap Copy web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.

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