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ETF Specialist

Cheap Exposure to the U.S. Telecom Firms

For investors with a strong conviction about the fortunes of telecom firms, this ETF's low fees make it an appealing option.

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 Vanguard Telecommunication Services ETF (VOX) offers concentrated exposure to the U.S. telecom industry. This exchange-traded fund holds 31 U.S.-domiciled telecom companies, including telecom service providers, one tower operator, and an IT services firm (inContact (SAAS)). As a result of its market-capitalization-weighting approach, this ETF is very top-heavy; the top-10 holdings account for the vast majority of the portfolio. And its top two holdings ( AT&T (T) and  Verizon Communications (VZ)) make up nearly half of the fund's assets.

Large telecom firms have tended to offer above-average dividend yields and may be attractive to income-oriented investors. This fund's dividend yield (3.5% as of Jan. 31, 2016) and annual payout have displayed some volatility during the past decade. Some telecom firms, such as AT&T and Verizon and their predecessors, have had stable or rising dividends for decades. However, dividend payouts have been less consistent among some of the smaller players, owing mostly to high amounts of financial leverage. CenturyLink (CTL) and  Frontier Communications (FTR) have made big dividend cuts and  Sprint (S) eliminated its dividend a few years ago.

Robert Goldsborough does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.