Despite the looming fiscal cliff concern that is haunting everyone in the United States, there are bargains out there in the stock market that investors are buying as many are optimistic that a deal will eventually get done. Even if the United States goes over the cliff most folks believe it will be temporary and not have a lasting effect on the economy. Both parties have a mandate and a set of parameters to follow, but they will also have to compromise to get a deal done. There are a lot of key items that need to be negotiated, with many concerned about the changes to be made to the dividend tax rate.
The current thought is that the highest the dividend tax rate will increase will be to 39.6% for those fortunate individuals in the top tax bracket. That is currently the worst case scenario from the whispers that we have heard from the negotiations. As a result there are some who are avoiding dividend yielding stocks and selling out of these securities, despite little guidance as to the finality of this issue. When focusing on dividends the utility sector typically offers the best dividend rates for investors to park their cash. Recently Consolidated Communication’s stock (NASDAQ: CNSL) dropped after a subpar earnings report, falling to a 6-month low. The stock has since recovered a bit and with the rare miss the shares are on sale for this industry leader.
Consolidated Communications (NASDAQ: CNSL), founded in 1894, provides telecommunications services to residential and business customers within its six states of operation in California, Illinois, Kansas, Missouri, Pennsylvania and Texas. With one of the highest quality networks in the industry, the company offers a variety of communications services, including high definition television, high speed internet and long distance service. Headquartered in Mattoon, Illinois, the company has a market capitalization of $608mm with major holders such as Vanguard and Blackrock.
The stock trades at just above $15 dollars a share and has since rebounded from a 6-month low of $13.48 a share. The company recently refinanced some of its debt with a new term loan and has a buy recommendation from Raymond James. The company recently declared its regular quarterly dividend of $0.38738 per share to stockholders of record on January 15, 2013, paying a dividend yield of 10.40%. The company is a great buy at these levels as the stock was trading at $18 dollars just 5-months ago.
Despite the fiscal cliff negotiations and tax reform to come next year a dividend yield of 10.40% is something to have in the portfolio even if the rate goes from 15% to 39.6%. The gain is still substantially more than most places for investors to put their money to work. And with the stock trading at $15 dollars a share, it is a great place to park and wait.