With the markets off to the races lately, many investors have once again begun shifting their portfolios toward growth. "Stodgier" and low beta funds such as the PowerShares S&P 500 Low Volatility ETF (ARCA:SPLV) have been cast aside in favor of faster-moving options. By blindly shifting into strict growth sectors, however, investors may be missing out on some prime opportunities.

One of those opportunities is in the wireless and telecom sector.

As smartphone and tablet adoption has been taking place rapidly, wireless providers are transforming themselves into supreme growth stocks - all while paying above-average dividends. Investors may want to give telecommunications stocks a ring.

SEE: A Primer On Investing In The Tech Industry

It's All About Data
At this point, it's no secret that mobile devices have become an integral part of many people's lives. The adoption of smartphones, tablet PCs and e-readers has grown rapidly, and by the end of 2012, the vast majority of American cellular phones were smartphones. That global usage of all those mini-computers, which combine various social networking, gaming and business functions, is causing a very profitable problem for the major wireless carriers - a major increase in data transmissions.

According to analysts at Fidelity, since 2007 the average revenue per unit (ARPU) of data for the four largest U.S. carriers grew from $9.50 to almost $27. That's a compound annual growth rate (CAGR) of nearly 23%. That increased wireless data consumption has become the lifeblood of the industry and has been the major driver of wireless revenues over the last 10 years.

That data consumption and smartphone adoption - along with high-speed video, digital cable services and mobile commerce - has firmly positioned the telecom sector as a potential growth engine for a portfolio. While traditional landline communication continues to shrink, these high-tech businesses are more than making up for any lost landline revenue. They will continue to do so as more consumers crave data-heavy devices.

This growth element of data-driven services doesn't even take into account the sector's other big appeal - it's a dividend paradise for investors. Firms within the sector are able to create steady revenue streams by locking subscribers into multi-year contracts. This allows the telecoms to project their future earnings with more accuracy and provide better profit potential. For income seekers, this translates into some of the highest dividend yields around. For example, CenturyLink (NYSE:CTL) yields a whopping 7.2%.

SEE: What You Need To Know About Mobile Patent Wars

Betting on Telecom Portfolio Growth
With the telecom sector offering high growth potential and high dividends, investors should consider adding these companies to a portfolio. For a cheap 0.46% in expenses, the iShares Dow Jones US Telecom (ARCA:IYZ) is the largest, in terms of assets, and most liquid way to add the sector to a portfolio. The ETF tracks 26 of the largest telecom firms including AT&T (NYSE:T) and United States Cellular (NYSE:USM). The fund yields a juicy 3.04%. Likewise, the Vanguard Telecom Services ETF (ARCA:VOX) can be used for broad telecom sector exposure. VOX yields 3.53%.

One of the best ways to play the wireless sector's growth is through the various tower operators. Believe it or not, the bulk of the numerous cellular towers that dot our countryside aren't owned by network providers such as Verizon Communications (NYSE:VZ). Ownership of these falls to firms such as American Tower (NYSE:AMT). AMT recently converted into a Real Estate Investment Trust (REIT), which provides big dividends for shareholders. The company's approximately 50,000 owned cellular towers across the globe kick off some hefty cash flows. That cash flows back to investors in the form of a growing 1.2% dividend and strong capital appreciation of shares.

Also catching the REIT bug is AMT rival Crown Castle International (NYSE:CCI). While not fully converted yet, the firm has taken the first step and begun reporting FFO metrics with its quarterly earnings announcements. Analysts predict that it's only a matter of time before the company converts. That could lead to growing dividends as well.

SEE: Cell Phone Evolution

The Bottom Line
With the markets swooning once again, some traditional steady-eddy sectors have been left behind. However, nothing is traditional about the telecom sector. Rising data consumption and smartphone adoption are providing a hefty dose of growth, while the sector's big dividends churn out juicy income. For investors, it offers a great portfolio play. The preceding picks, along with the SPDR S&P Telecom (ARCA:XTL), make ideal selections to play the sector.

At the time of writing, Aaron Levitt did not own any shares in any company mentioned in this article.

Related Articles
  1. Investing

    In Search of the Rate-Proof Portfolio

    After October’s better-than-expected employment report, a December Federal Reserve (Fed) liftoff is looking more likely than it was earlier this fall.
  2. Investing

    Time to Bring Active Back into a Portfolio?

    While stocks have rallied since the economic recovery in 2009, many active portfolio managers have struggled to deliver investor returns in excess.
  3. Chart Advisor

    Now Could Be The Time To Buy IPOs

    There has been lots of hype around the IPO market lately. We'll take a look at whether now is the time to buy.
  4. Stock Analysis

    Allstate: How Being Boring Earns it Billions (ALL)

    A summary of what Allstate Insurance sells and whom it sells it to including recent mergers and acquisitions that have helped boost its bottom line.
  5. Personal Finance

    How Tech Can Help with 3 Behavioral Finance Biases

    Even if you’re a finance or statistics expert, you’re not immune to common decision-making mistakes that can negatively impact your finances.
  6. Chart Advisor

    Copper Continues Its Descent

    Copper prices have been under pressure lately and based on these charts it doesn't seem that it will reverse any time soon.
  7. Options & Futures

    Cyclical Versus Non-Cyclical Stocks

    Investing during an economic downturn simply means changing your focus. Discover the benefits of defensive stocks.
  8. Mutual Funds & ETFs

    Buying Vanguard Mutual Funds Vs. ETFs

    Learn about the differences between Vanguard's mutual fund and ETF products, and discover which may be more appropriate for investors.
  9. Mutual Funds & ETFs

    ETFs Vs. Mutual Funds: Choosing For Your Retirement

    Learn about the difference between using mutual funds versus ETFs for retirement, including which investment strategies and goals are best served by each.
  10. Mutual Funds & ETFs

    How to Reinvest Dividends from ETFs

    Learn about reinvesting ETF dividends, including the benefits and drawbacks of dividend reinvestment plans (DRIPs) and manual reinvestment.
  1. Should mutual funds be subject to more regulation?

    Mutual funds, when compared to other types of pooled investments such as hedge funds, have very strict regulations. In fact, ... Read Full Answer >>
  2. Do ETFs pay capital gains?

    Exchange-traded funds (ETFs) can generate capital gains that are transferred to shareholders, typically once a year, triggering ... Read Full Answer >>
  3. How do real estate hedge funds work?

    A hedge fund is a type of investment vehicle and business structure that aggregates capital from multiple investors and invests ... Read Full Answer >>
  4. Are Vanguard ETFs commission-free?

    While some Vanguard exchange-traded funds (ETFs) are available commission-free from third-party brokers, a large portion ... Read Full Answer >>
  5. Do Vanguard ETFs require a minimum investment?

    Vanguard completely waives any U.S. dollar minimum amounts to buy its exchange-traded funds (ETFs), and the minimum ETF investment ... Read Full Answer >>
  6. Can mutual fund expense ratios be negative?

    Mutual fund expense ratios cannot be negative. An expense ratio is the sum total of all fees charged by an asset management ... Read Full Answer >>

You May Also Like

Trading Center