We recently compiled a list of the 12 Best High Dividend Stocks Under $100. In this article, we are going to take a look at where Cogent Communications Holdings, Inc. (NASDAQ:CCOI) stands against the other high dividend stocks under $100.
Dividend stocks hold strong appeal for income generation for two main reasons. First, their regular payouts help investors address immediate liquidity needs. Second, historical trends indicate that dividend-paying stocks can help reduce market volatility and limit losses during downturns. Companies with a track record of dividend growth often provide added stability during bearish markets. For instance, between December 31, 1999, and March 31, 2022, during periods of market decline, the High Yield Dividend Aristocrats index outperformed the Composite 1500 and the High Dividend Index, delivering an average monthly outperformance of 140 and 49 basis points, respectively.
Investing in dividend stocks has always been a tug-of-war between those favoring high yields and those backing dividend growth. Analysts suggest that due to economic volatility since 2020 and ongoing market uncertainties impacting corporate earnings, high-yield companies without strong financial stability and discipline may struggle to maintain their dividend payouts. This could leave them at risk of dividend cuts or suspensions. In contrast, dividend growth strategies have proven effective in both rising and falling interest rate environments. According to a report by ProShares, the Dividend Aristocrats index, which tracks companies with at least 25 years of consistent dividend growth, achieved a 14.26% return during the period of declining interest rates from May 2005 to March 2024, outperforming high-yield stocks, which delivered just over 10%. Similarly, during periods of rising interest rates within the same timeframe, dividend growth stocks returned 10.26%, compared to 9.22% for high-yield stocks.
Also read: 10 Extreme Dividend Stocks to Invest in Now
That said, high-yield stocks aren’t entirely off the table. While analysts warn investors about the financial stability of high-yield companies, these stocks have historically delivered solid returns. The research from The Wellington study analyzed the broader market’s dividend-paying stocks from 1930 to 2019, dividing them into five categories based on their dividend yields. The top 20% of dividend payers outshone the rest, with the moderate dividend group also surpassing the broader market in several periods. However, stocks with lower dividend yields showed less consistent performance compared to the broader index.
Kirsten Cabacungan, an investment strategist at Merrill and Bank of America Private Bank, encouraged investors to focus on both price appreciation and dividend income when evaluating total returns. She highlighted that dividend-paying stocks bring added advantages, as their steady income can help cushion losses during market downturns, offering stability to a portfolio. Moreover, during periods of low interest rates, these stocks often provide higher income compared to options like Treasury bonds, CDs, or corporate bonds. Here are some other comments from the analyst:
“Companies that have consistently increased their dividends tend to be more stable, higher quality businesses, which historically have weathered downturns and are more likely to have the ability to pay dividends consistently.”
Cabacungan advised that investors looking for steady income might benefit from focusing on stocks with above-average dividend yields held over the long term. On the other hand, those prioritizing growth without the need for immediate income should consider stocks with a history of steadily increasing dividends. This strategy aligns with a growth-focused approach, enabling investors to capitalize on companies that consistently enhance their dividends as their profits and cash flows expand. Given this, we will take a look at some of the best high-yield stocks under $100.
Our Methodology:
For this list, we first used a stock screener to identify dividend-paying stocks priced below $100 and offering dividend yields above 4% as of January 24. From that selection, we chose 12 companies with strong dividend histories and ranked them in ascending order of hedge funds’ sentiment toward them, according to Insider Monkey’s database of Q4 2023.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here).
An aerial view of an internet exchange point, illustrating the importance of an online service provider.
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.
Overall CCOI ranks 6th on our list of the best high dividend stocks under $100. While we acknowledge the potential CCOI as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than CCOI but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
