Ring Up SBC

04/11/2003 12:00 am EST

Focus:

Martin Pring

Publisher, Intermarket Review

Our stock pick this month is SBC Communications (SBC NYSE), the second largest US local telephone service provider with 57 million phone lines in 13 states. SBC generates over $43 billion in revenue. SBC is one of the original Baby Bell companies created by the 1984 divestiture and split up of AT&T. The firm has grown through mergers and acquisitions and consolidating several of the original Baby Bell companies. Today SBC is a global leader in communications with growth targeted toward data, long-distance, and wireless. This investment should be made with the primary objective of providing capital growth for your portfolio and a superior dividend yield.

 

1. Strong Management: In today’s world, it is refreshing to own interest in a firm that has been recognized by Fortune magazine as the most admired telecommunications firm in America. Last year, SBC was also given the Ron Brown Award, the only presidential award for corporate leadership. Management has been very aggressive in adjusting to the economic slowdown and competitive industry pressures by slashing costs and reducing overhead. Management has also strengthened the balance sheet and reduced overalldebt in this tough business environment.

 

2. Out of Favor Phone Utilities: SBC’s stock price has been knocked down with the telecommunication bust of the past three years. The price of SBC today is nearly one-third of its high price, making it an attractive purchase for value minded investors. The current price earnings ratio is at the low end of its range of the past ten years, which leaves lots or roomfor price appreciation when the telecommunications industry comes back into investor favor.

 

3. Income: At today’s price, SBC is available with a strong dividend yield of roughly 5%. The company just last week raised the dividend for the 19th consecutive year and also paid an additional special dividend. We expect to see the dividend to continue to rise and pay today’s investors even more income in the years ahead.

 

Finally, recent market events have combined to present conservative investors with an opportunity to buy this quality company and get high dividend income while waiting for capital appreciation. Management’s history of enhancing shareholder value will benefit you with handsome total return potential.”

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