A Rising Telecom Dividend

LONDON -- I'm becoming increasingly convinced that the telecom industry is turning into a mature cash cow, and that was the theme of my recent look at the sector. In fact, I think it's right up there with the "Top Sectors for 2012" identified in a free Motley Fool report as part of the bedrock of a safe portfolio.

One of the smaller companies I examined, Alternative Networks (ISE: AN.L) , has released interim results that look pretty good. The AIM-listed business-to-business telecom provider saw pretax profits for the six months to March grow by a third to 5.6 million pounds. That was on pretty much flat turnover of 57 million pounds and is partly due to increasing margins and a 9% growth in mobile services.

Growth strategy coming good

Management comments in results announcements are usually as upbeat as possible, but in this case it looks like chief executive James Murray was justified in saying:

Alternative Networks delivered a robust performance in the first half of the year, in the face of challenging market conditions. The major components of our growth strategy all played their part. We continued to increase our market share; we maintained high levels of cross-selling across our customer base and saw reduced churn; and we invested in areas where we know we already have a competitive advantage.

He talks of growth strategy, and in the past a small telecom company trying to make it big would be borrowing money and putting it all into that growth. But that's not the Alternative Networks approach, as the firm is going for cash flow and rewarding investors with decent dividends, too. Over the period, 90% of EBITDA was converted into operating cash flow, and it ended with 13 million pounds net cash on the books, up from the last year-end.

Dividend boost
That enabled an interim dividend of 4 pence per share to be announced, with an intention to pay at least 11 pence per share in total for the full year. The board has also reiterated its previous plan to raise its dividend by at least 10% for 2013, and it has extended it for another year to 2014.

That's in line with the big players, with BT (NYS: BT) targeting 10% to 15% dividend growth a year for the next three years and Vodafone (NAS: VOD) aiming to repeat this year's 7% rise in its annual payout.

Worth buying now?
Are Alternative Networks shares worth buying now? Well, if you learned that they have already grown from 97 pence in mid-2009 to 265 pence now for a near-three-bagger, you might think the chance has passed you by. But that planned 11 pence full-year dividend represents a yield of more than 4%, and the prospective price-to-earnings ratio is a fairly modest 12.

That doesn't sound bad to me for a company offering decent dividends and growth potential.

He avoided techs in the dot-com bubble and banks in the credit boom. But just where is dividend expert Neil Woodford investing today? All is revealed in this free Motley Fool report -- "8 Shares Held By Britain's Super Investor."

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At the time thisarticle was published Alan does not own any shares mentioned in this article.Motley Fool newsletter services have recommended buying shares of Vodafone Group Pl. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

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