With all of the media buzz that surrounds next-generation smartphones and their new apps, it’s hard for investors to get too excited about good old-fashioned telecoms these days. That’s a shame, since these companies can be a rich source of dividends for income investors. Many pay 5% yields, and some yield as high as 9%.

Most of these high-yielding telecoms were founded decades ago to provide local and long-distance landline telephone services to rural communities. You may think these providers are becoming extinct — after all, the number of landline connections is contracting roughly 10% a year — but that’s simply not the case. Instead of shrinking, these companies are offsetting eroding landline revenue with revenue from new services such as broadband Internet, digital TV and web hosting.

Rural telecoms can offer rich income opportunities for investors because of their stable cash flow and modest spending needs. Many are able to pay hefty dividends that should grab any income investor’s attention.

Here are three of my favorite high-yielding telecoms…

1. Consolidated Communications Holdings (Nasdaq: CNSL)
Yield: 8%

This rural telecom has served local markets in Illinois, Texas and Pennsylvania for more than 100 years. At present, Consolidated has about 230,000 local and long-distance landline customers, 110,000 broadband Internet customers and 33,000 digital TV subscribers.

Although Consolidated’s revenue fell 4% in the first nine months of 2011 to $280.6 million due to asset sales and fewer access lines, cash from operations for this cash cow improved 17% to $93.3 million. Consolidated had more than enough cash flow to easily cover $34.7 million of dividends and $31.2 million of capital spending. In addition, cash on the balance sheet rose by $20 million in the nine months to reach $92 million in September.

This week Consolidated announced plans to acquire broadband services provider SureWest Communications (Nasdaq: SURW) for $340.9 million. Surewest operates in the Kansas City and Sacramento markets. Once the deal closes, Consolidated will have operations in six states, combining for $620 million in annualized revenue, an improved product mix with 70% of revenues from business and broadband customers, and growth opportunities from its expanded footprint.

The company also expects to realize $25 million in annual operating synergies and benefit from $67 million in operating loss carryforwards from SureWest that can be used to offset future taxes.

Consolidated pays a $1.55 annual dividend and yields 8.0%. Payments haven’t increased in four years, but new growth opportunities from SureWest could spur future dividend growth.

2. Hickory Tech Corp. (Nasdaq: HTCO)
Yield: 5%

Hickory Tech delivers broadband Internet, digital TV, voice and data services to businesses and homes in Minnesota and Iowa. The company’s customer base consists of some 49,000 local and long-distance landline customers, 20,000 broadband Internet customers and 11,000 digital TV subscribers.

Hickory Tech has done a good job increasing the revenue contribution from business and broadband customers, which currently account for 70% of revenue compared with less than 50% five years ago. Additional growth will come from the acquisition of IdeaOne Telecom, which the company announced in December.

IdeaOne owns a fiber optic network serving customers in Fargo, North Dakota. Through this acquisition, Hickory Tech gains 3,600 new business and residential customers and extends its multi-state fiber network into new markets. Hickory Tech expects the $28 million acquisition to be immediately accretive to cash flow, and to close the deal in the first quarter of 2012.

During the first nine months of 2011, Hickory Tech nearly doubled cash flow from operations to $24.8 million from $12.9 million on 4% growth on a total $124.0 million in revenue. The company had plenty of cash left over after investing $14.8 million in capital expenditures and after paying $5.4 million in dividends. Hickory Tech has been paying dividends for more than 60 years and raised the payment twice in the past five quarters, including a 4% increase in September to a $0.56 annual dividend rate.

3. Warwick Valley Telephone Co. (Nasdaq: WWVY)
Yield: 8%
Warwick provides telecom services in the Hudson Valley between New York and New Jersey, and expanded its business last July by acquiring Alteva for $17 million. Alteva provides cloud-based unified communication and voice-over-Internet services to businesses. The acquisition added new higher-margin services and $7 million (a 30% increase) to Warwick’s annual revenue.

Reflecting Alteva’s contribution, Warwick’s revenue jumped 9% to $6.8 million in the third quarter of 2011, compared with $6.3 million in the third quarter of 2010. Higher costs and acquisition-related charges, however, caused Warwick to record a third quarter net loss of $0.31 per share compared with earnings of $0.23 a share a year earlier.

Warwick’s cash flow from operations only totaled $4.6 million in the first nine months of 2011 and barely covered $4.3 million of dividend payments. The good news for investors is that Warwick easily covers the dividend from distributions it receives from an infrastructure partnership. The partnership made distribution payments totaling $9.9 million to Warwick during 2011 and guarantees yearly payments of $13 million to Warwick through 2013. 

Warwick has a 104-year history of dividend payments, and payments have increased by a total of 30% in the past four years. The last increase was 8% March 2011, to a $1.04 annual dividend rate.

Risks to consider: Dividends from these companies are generally considered safer than most because of stable cash flow, but even rural telecoms aren’t immune from dividend cuts. A recent case in point is Alaska Communications Systems (Nasdaq: ALSK), which slashed its dividend by 77% in December in anticipation of reduced cost support from the Federal Communications Commission.

Action to take –> My top pick overall is Warwick because of good dividend growth and a safe high yield secured by partnership distributions. Warwick is guaranteed cash distributions of $13 million a year in the next two years, enough to cover the annual dividend four times over. Consolidated has rising cash flow, but the worst record for dividend growth. Hickory Tech has better cash flow and dividend growth, but this company is a micro-cap stock, which makes it somewhat riskier.