News / Business / Columnists

Berko: Keep Dad’s NORSB for dividends

By Malcolm Berko

Published: December 10, 2016, 6:02am

Dear Mr. Berko: My father-in-law’s portfolio has 100 shares of North State Communications, which my wife and I think he bought in 2004 or 2005. Dad had Alzheimer’s disease, lived in High Point, N.C., and recently passed away. We can’t find any record of his purchase. Mom has little knowledge about this stock (she thinks Dad paid $96 a share), though she’s familiar with other telecom stocks that she owns. We can figure out most of this stuff, but we need your advice on North State because we can’t find reports on this company. Our question is: Should Mom keep North State?

— F.W., Durham, N.C.

Dear F.W.: North State Telecommunications Corp. (NORSB-$60.70) may be the biggest small telecommunications company you’ve never heard about. NORSB is a modern, finely tuned and well-managed company headquartered in High Point and founded in 1895. Today, it is ably run by Patrick Harman, the grandson of NORSB’s founder. The company posted $109 million in 2015 revenues, or some $272,000 per employee.

NORSB, with 68,000 miles of high-capacity fiber optics, is a very modern telecom company. It provides landline and cellular phone service, residential and business services, web hosting, yellow pages, cloud hosting, data management, and digital TV to 600 square miles of rustic, bucolic communities. In 2015, NORSB posted nearly $9.6 million in net income, so each of its 400 employees contributed about $24,000 in profits to the company.

Most of the townsfolk like this local company; we can’t say that about folks in Miami, Phoenix or Chicago, many of whom compare their phone companies to the IRS or the DMV. When things go wrong (and they do), the townsfolk know whom to call. And when they call, they call their service technician by his given name and usually get friendly next-day service.

NORSB pays a $1.30 quarterly dividend ($5.20 annually) yielding 8.3 percent. It has paid this dividend since its initial public offering in 2004, when the stock traded at over $100 a share. Part of the reason for NORSB’s high yield is that there’s little to no revenue growth in the company’s service area and, consequently, there’s little to even less principal appreciation. All earnings improvement must be organic and derive from continued operating and equipment efficiencies rather than customer growth. The stock basically trades by appointment, as there are only 886,000 shares outstanding; some days, it doesn’t trade at all.

NORSB’s numbers look just fine. There’s $3.8 million in cash. Debt is approximately 48 percent of revenues. Book value is just under $43 a share. Net profit margins run about 8.86 percent. Return on equity and return on assets are 2.2 percent and 9.51 percent, respectively. Last year, earnings before interest, taxes, depreciation and amortization came to $27.75 million, and 34 percent of EBITDA, or $9.61 million, translated into net income. Meanwhile, Franklin Value Investors Trust has 22,000 shares. It is the only mutual fund that owns the stock, but High Point Bank has 21,000 shares in its portfolio.

I like phone companies. But things were so different before they changed! Phone companies used to be impervious to inflation, depression and the economic cycle. Not so today, as telecom companies’ revenues have become an important and vital function of our business and data climate because of their involvement in almost every aspect of commerce. NORSB’s service area is dominated by a $5 billion furniture industry, various small liberal arts colleges and numerous small businesses, which are not conducive to dynamic revenue growth for NORSB.

But I’d keep NORSB for the dividend — certainly not for principal appreciation. I know that the dividend isn’t covered, but I’m told that 2016 revenues and earnings will be sufficient for the $5.20 dividend to be fine.

Malcolm Berko addresses questions about stocks. Reach him at P.O. Box 8303, Largo, FL 33775 or mjberko@yahoo.com.

Related Stories