3 High Yield Technology Stocks

Mohsin is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

The technology sector is usually not known for its high dividends because companies prefer to invest heavily in R&D and focus on revenue growth. The telecommunication industry is an exception in the technology sector, however, as it offers some of highest yields in the entire market. The following three companies offer some of the highest dividends in the technology sector, and the discussion will demonstrate that these dividends are sustainable as well. 

France Telecom (NYSE: ORAN)

France Telecom is one of the world’s largest telecom companies. It operates under the Orange and France Telecom brand names and provides a wide variety of services including mobile telecommunication, data transmission, fixed telephony, Internet etc. The customers of France telecom include telecommunication operators, individual consumers and businesses.

France Telecom has one of the highest dividend yields in the entire technology sector. The company offers a stellar dividend yield of 16.7%, which is almost five times industry and six times sector average dividend yield. However, despite this stellar dividend yield the company valuation has constantly depreciated during the last few years. The stock value has depreciated by 52% in the last two years and 31% in the last 52 weeks.

France Telecom generates annual CFOs of around $17 billion, which gives us an exceptional operating cash flow yield of 65%. This shows that the company's operations can easily finance its very high dividend yield of 16.7%. The only point of concern for investors should be the continued capital depreciation, which is higher than its dividend yield. France Telecom is currently trading at a 30% discount to the mean sell side target price, an indication that valuations can improve in the long run.

WindStream Corporation (NASDAQ: WIN)

Windstream offers its customers technology and communication solutions. The rapid growth in low memory handheld devices and high Internet speeds has increased the demand for cloud services, which is one of the major business areas of WindStream. The company also provides its rural customers with voice, broadband and video services.

WindStream offers a very high dividend yield of 11.6%, and the stock is also trading at a 20% discount to the mean sell side target price. WindStream has an operating cash flow yield of 37.5%, much higher than its dividend yield of 11.6%. The stock price has depreciated considerably in the last couple of years due to consistent decline in landline telephone business. A major reason behind the price decline is the market expectation that WindStream will cut its high dividend. The high operating cash flow yields hints that any such move should not be expected anytime soon.

The stock is currently trading at a forward P/E of 15x and has a 33% buy or strong buy recommendation from analysts. The discussion shows that dividends of Windstream are sustainable in the short run, but long term investors should keep a lookout for successful diversification away from landline telephone business.

CenturyLink (NYSE: CTL)

CenturyLink provides various telecommunication services to a diverse client base. The company offers cloud hosting, security monitoring, fiber transport and local access. It has a high dividend yield of 7.7%, which is almost twice the industry average. CenturyLink's dividend has grown by an average of 62% in the last five years, which is almost six times the industry average.

The company has a cash flow operating yield of 27%, which shows that it generates enough cash from operations to finance its high dividend yield of 7.7%. The stock is also trading at a 5% discount to the mean sell side target price. At these levels CenturyLink has a sustainable dividend and prospects of capital appreciation.

Bottom line

These three companies have very high dividend yields and solid operating cash flow yields. France Telecom and CenturyLink are good long term investments due to their sustainable business models. WindStream faces the problems of a declining industry and needs to increase its diversification efforts. I believe Investors can consider these companies solid dividend investments due to their sustainable dividends and solid cash flows. 

Mohsin Saeed has no position in any stocks mentioned. The Motley Fool recommends France Telecom (ADR). The Motley Fool owns shares of France Telecom (ADR). Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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