7. Cogent Communications Holdings, Inc. (NASDAQ:CCOI)
Dividend Yield as of November 11: 4.89%
Cogent Communications Holdings, Inc. (NASDAQ:CCOI) is a multinational internet service provider company that offers services related to internet access and data transport. Oppenheimer highlighted the company in its recent investors’ note as the firm mentioned that the growing demand for data centers is surpassing infrastructure development, which is expected to result in capacity limitations by 2025. The surge in demand is driven by the need for vast computing power to support large language models and other artificial intelligence applications. The stock has surged by 6% since the start of 2024 and in the past 12 months, it has delivered a staggering return of 27%.
Cogent Communications Holdings, Inc. (NASDAQ:CCOI) reported mixed earnings in the third quarter of 2024. Its revenue for the quarter came in at $257.2 million, which fell by 6.6% from the same period last year. As vacancy rates rise and lease initiations or renewals decrease, leading to fewer tenants, the company has experienced a slowdown in new sales to corporate clients, which has adversely affected its corporate revenue. In addition, it continues to see reduced office occupancy rates across its properties in North America’s central business districts, mainly due to remote work policies introduced during the COVID-19 pandemic.
That said, Cogent Communications Holdings, Inc. (NASDAQ:CCOI) isn’t entirely a poor choice; it could still be a strong option from a dividend perspective. The company’s cash position is strong, with its trailing twelve-month levered free cash flow coming in at over $101 million. In the most recent quarter, it also generated $52.4 million in operating cash flow, which showed a significant growth from $22.2 million in the prior-year period. 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) is one of the best stocks on our dividend contenders list as the company has been growing its dividends consistently for the past 49 quarters. It currently pays a quarterly dividend of C$0.995 per share for a dividend yield of 4.89%, as of November 11.
