There are no safe havens in the stock market. Every stock carries risk. But some less than others. This column features stocks that have shown one or more of the following characteristics: less volatility, better earnings, larger market caps, safe and increasing dividends. In these times of turmoil, our goal is to show readers better opportunities for investing with fewer risks.

September 23, 2008 - :

Price:$15;Yield:10.31;Dividend/Earnings:380;Financial Strength:C++;Div.Date:Oct 31;Ex.Div.Date:Oct 13

Why It's Featured: Impressive yield, well established, sales steady, increasing with new HD service.
Watch Out For: Capital requirements, access line losses.

Consolidated Communications (CNSL-NASDAQ) through its subsidiaries, provides communications services to residential and business customers in Illinois, Texas, and Pennsylvania. It offers a range of telecommunications services, including local and long distance service, custom calling features, private line services, dial-up and high-speed Internet access, digital television, carrier access services, network capacity services over its regional fiber optic network, and directory publishing.

The company also provides telephone directory publishing, wholesale transport services on a fiber optic network in Texas, billing and collection services, inside wiring service and maintenance. In addition, Consolidated Communications Holdings operates a number of complementary businesses, including telemarketing and order fulfillment; telephone services to county jails and state prisons; equipment sales; operator services; and mobile and paging services.

Its business customers include small retail, commercial, light manufacturing, and service industry accounts, as well as universities and hospitals. As of December 31, 2008, Consolidated Communications Holdings had approximately 264,323 local access lines; 74,687 competitive local exchange carrier access line equivalents; 91,817 high-speed Internet subscribers; 16,666 Internet protocol digital television subscribers; and 6,510 digital telephone service subscribers. The company was founded in 1894 and is headquartered in Mattoon, Illinois.

Be aware that this is a small company. Market Cap (the number of shares outstanding times the price of the stock) is $450 million. But the dividend is $1.55. On a $15 stock, that's better than 10%. The $1.55 level has been there for the last 4 years and will most likely continue, as the company's cash flow is strong enough to support it.

Earnings aren't close to that level, with 2008 showing 71 cents. This year consenus estimate for earnings from 5 anlaysts is 79 cents, then 84 cents in 2010. In 2007, the company reported only 18 cents a share. Third quarter numbers should be 20 cents a share, above the 16 cents in the third period of last year. For the fourth quarter, it's another 20 cents, again ahead of last year's fourth at 17 cents.

While many telcos have seen lower sales and profits due to a slackening economy, Consolidated has reported stable to improving results. Its 25 cents earnings in the second quarter were more than double the first quarter's 11 cents. Revenues improved slightly to $102 million, up from $101.7 million in the first.

One concern investors have about this company is loss of traditional access lines. While some of these subscribers are leaving, part of the loss has been mitigated by additions to the IPTV and DSL services. Furthermore, new services are being introduced to regain some of the access line revenue. The IPTV service now offers HD channels. Subscribers increased by 41% over last year, thanks to that clearer picture. The company is also implementing a new technology, pair bonding, that creates a wider-covered network area with minimal expenditure. The upgrade also increases bandwidth capacity for new programming offerings and boosts broadband speeds to 30mg.

These new products and services should bring back some old customers, expand the market, and add new customers. Furthermore, the company will most likely look to acquire smaller telcos to continue its growth.

More numbers: Trailing P/E is 22.85 but Forward P/E is 17.87. Price to sales is 1.09. Price to book is 6.77. Book value is $2.23. Operating margin for the last 12 months was 18.14% while Profit margin was 4.74%. Return on equity was 11.99%. There's $20.02 million in the bank, making $ .675 a share. Total debt is $880.81 million which is 87% of capital. Current ratio is 1.127. There are 29.65 million shares outstanding with a float of 23.25 million. Insiders own 20.20% while institutions have 44.90% of the float.

Investors have discovered Consolidated, pushing the price from a low of $7.27 in November of last year to a recent high of $17.33. It's off a little from that now. But this stock traded at $23.70 in 2007 with the same earnings. So more upside may be seen. It's really the dividend that should catch most investors' eyes, certainly income investors. While this is a small company, and loss of access lines is an ongoing concern, new products and services should keep this company growing.

- Company Web site: www.consolidated.com

 - Ted Allrich