Technology firms are among the most competitive stocks to own. That competition has many of these businesses making acquisitions in an effort to stay ahead of the game. Too much growth can negatively affect a company’s returns to investors, since dipping into cash flow takes its toll on the company’s earnings per share and dividends. The following three companies represent businesses that are expanding, but knowing which firms can handle that growth is your key to successful investing.
Dividends could flow away from Windstream
Windstream Corporation (NASDAQ:WIN) is one of the best purchases a dividend player could make. Since 2007, the company has managed to pay out $1 per share each year. This currently represents a yield of nearly 12%. Can the company keep its dividend at its current rate?
The firm currently has to worry about an increase to its debt due to recent acquisitions, and those payments could eat into its dividend. That’s something that investors should be wary about. Windstream Corporation (NASDAQ:WIN) has had a much higher debt to equity ratio in the past, however, and has maintained its dividend throughout (see chart below.)
You should look for improved revenues from increased exposure to integrated services through consumer broadband and data, since its debt is accumulating through purchases in the segments.
Analysts are wary about this stock. They predict that the company will decrease its revenue by 1.8% this year before recovering slightly to post an increase of 0.1% next year. Keep an eye on the stock, and if the company doesn’t decrease or eliminate the dividend in the next year (which I don’t think it will) then that could be a sign that the firm is committed to maintaining its payout.
SBA looks to expand in Brazil
SBA Communications Corporation (NASDAQ:SBAC) is racing to buy cellphone towers in Brazil. Leases on the towers offer an 85% return on equity, Wells Fargo & Co. analyst Jennifer Fritzche told Bloomberg. That would significantly improve SBA Communications Corporation (NASDAQ:SBAC)’s bottom line and the returns it offers for investors. Furthermore, with Brazil expected to be among the top four fastest-growing countries in the world in the years ahead, lease rates could very well increase.
The company already owns 800 towers in Brazil, and investing in the firm could help you earn on the developing world boom. Brazil’s economy is expected to grow 5.3% over the next three years, and the telecom market is anticipated to increase from its $73 billion level in 2011 to $100 billion by 2017. SBA Communications Corporation (NASDAQ:SBAC) looks to be the preferred company to buy the 2,113 Brazilian towers, and is reportedly in talks with Oi SA for a $302 million purchase.
Analysts are also bullish on the company, and believe it will increase revenue by 33% this year, and another 7.1% next year. The company’s earnings per share is pegged to increase by 164% this year and 216% next year. It is still expected to post a loss in each of those years, however.
Aruba will need to spend to compete
Aruba Networks, Inc. (NASDAQ:ARUN) is struggling to be at the forefront of wireless networking systems, an industry that MakerLine says will increase by 34% by 2015 to represent a $184 billion industry. The growing approval of wireless computing devices is encouraging businesses to adopt wireless networking. That positions Aruba well to rake profits if it can compete.
The company makes it easy for businesses to add WiFi networks to wired systems through its Mobile Edge Architecture. This utilizes various wireless access points to facilitate the transition. That ease of functionality is sure to lure clients to what Aruba Networks, Inc. (NASDAQ:ARUN) has to offer, and that means increased revenue and shareholder profits.
Analyst forecast a 15.2% rise in revenue this year, and another 11.4% next year. However, earnings per share is expected to fall by 3% this year and rise 10% next year. This year’s expected decrease is likely due to anticipated costs related to expansion. After all, progress is being made by major competitors Motorola, HP and Cisco, which offer similar services. It will require more investment by Aruba to compete, but once a larger client base is stabilized then the firm will likely be able to maintain greater returns.
What it boils down to
I would hold off buying Windstream Corporation (NASDAQ:WIN) until I was certain its dividends aren’t affected by the company’s growth expenses. The company could be the perfect purchase for a retirement portfolio based on the massive dividend if it remains, however. With SBA Communications Corporation (NASDAQ:SBAC), I only purchase companies that have a profit margin but the company could be ready to erase much of the red on its financials with its Brazilian prospects. Aruba will likely experience continued earnings per share loss over the next couple years if it is going to compete with its larger competition by growing. It shows tremendous promise, however, and I’d look to buy once the company’s share price falls by about 10% given decreased returns based on any acquisition expenses.
Phillip Woolgar has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.
The article These Tech Firms Should Proceed with Caution originally appeared on Fool.com and is written by Phillip Woolgar.
Phillip is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.