6. Cogent Communications Holdings, Inc. (NASDAQ:CCOI)
Number of Hedge Fund Holders: 27
Dividend Yield as of January 24: 5.26%
Share Price as of January 24: $75.70
Cogent Communications Holdings, Inc. (NASDAQ:CCOI) is a Washington-based multinational internet service provider company that offers services related to internet access and data transport. The company is close to finalizing a major network overhaul that started over 18 months ago, focused on creating a custom-designed wavelength network. This extensive project has included substantial upgrades across its entire infrastructure to support efficient any-to-any data center connectivity. A key aspect of this transformation is the integration of a ROADM-enabled network at key metro hubs and regeneration points. These Reconfigurable Optical Add-Drop Multiplexers (ROADMs) automate the routing of long-distance data waves between metro regions, eliminating the need for manual adjustments.
Cogent Communications Holdings, Inc. (NASDAQ:CCOI) is a strong investment option from a dividend point of view. The company maintains a solid financial position, with its trailing twelve-month levered free cash flow exceeding $101 million. During the latest quarter, it reported an operating cash flow of $52.4 million, marking a significant increase compared to $22.2 million in the same period last year.
Alphyn Capital Management, in its Q3 2024 investor letter, also highlighted the company’s strong performance in its core operations. Here is what the firm has to say:
“In its latest earnings release, Cogent Communications Holdings, Inc. (NASDAQ:CCOI) reported steady, albeit unspectacular, performance in its core operations. There has been some progress on extracting cost synergies from the Sprint acquisition, and there is some potential for value creation through monetizing “hidden assets” from its IPv4 and data center co-location fees. The company has made progress in realizing cost synergies from the spring acquisition and may unlock additional value by monetizing “hidden assets” such as its IPv4 holdings and data center co-location fees. However, the crux of the investment thesis remains the potential for significant revenue growth from waves. Without this catalyst, I believe the stock could drop to the low $60s, but with waves revenues materializing, the upside potential could exceed $150.
It is interesting to see what happened with Lumen, a competitor to Cogent, after announcing a $5 billion deal to build a custom network for Microsoft’s data centers on July 24th. The stock jumped from around $1.50 to approximately $7 per share. From my understanding and based on reading a short seller report,2 Lumen is primarily acting as a contractor in this deal, and it is estimated to retain only $800 million in one-time profits from construction and only $21 million in recurring profits.
In contrast, Cogent has the potential to generate over $500 million in recurring operating profits3 if it can successfully sell its wave revenues over the next few years. The capital expenditure is much more limited, as Cogent is connecting an existing infrastructure that all its customers can use instead of a bespoke construction for just one customer. While I don’t expect the same dramatic market reaction as Lumen’s, Lumen’s stock rally was partly due to relief from its potential bankruptcy risk as the influx of cash will help manage its substantial $18 billion debt; I do think this situation reflects the market’s appetite for companies providing infrastructure critical to AI and cloud development.”
Cogent Communications Holdings, Inc. (NASDAQ:CCOI) currently offers a quarterly dividend of C$0.995 per share, having raised it by 1% in November 2024. This was the company’s 49th consecutive quarter of dividend growth, which makes CCOI one of the best dividend stocks on our list. As of January 24, the stock has a dividend yield of 5.26%.
The number of hedge funds tracked by Insider Monkey owning stakes in Cogent Communications Holdings, Inc. (NASDAQ:CCOI) grew to 27 in Q3 2024, from 22 in the previous quarter. These stakes are worth over $540.8 million. With over 1.2 million shares, MIG Capital was the company’s leading stakeholder in Q3.
