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Near a 52-week high, these shares could still be a BUY

With the bull market roaring ahead, there’s been no shortage of stocks hitting new highs in recent weeks.

Yet one stock in particular is worth investors’ attention. In the chart below, you’ll see that  ISP and data centre company Vocus Communications Limited (ASX: VOC) has packed on 28%, just in the last three months. By way of context, the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) rose about 4.5% over the same period.

Vocus vs AXJO

Such a short period of time is but a blink of an eye for long-term investors. Still, what’s behind this rapid price appreciation?

Maiden dividend announcement

In February of this year, Vocus announced its maiden dividend of 0.4 cents a share, fully franked. Chief executive James Spenceley seemed to signal that future dividends could be higher as well, saying that “On the basis of the strong results and growing asset base, the Board has decided to start rewarding the shareholders with an initial conservative dividend”.

This came on top of an exciting half year result, with the company reporting revenues rising 40% over the previous corresponding period to $21.9 million. Net profits climbed 20% to $3.5 million.

The company also pointed to lower capital expenditure in the future. As stated in a recent presentation, “Total capital expenditure is expected to peak in FY13, signalling the expected completion of Vocus’ transformational investment phase”.

Looking forward, the company’s valuable assets, including rights to the Southern Cross cable (the primary internet connection between Australia, New Zealand and the U.S.), could lead to rising profits for years to come.

Mr. Market finally catching on?

It seems Mr. Market has caught on to Vocus’ rapid growth story. Still, shares appear relatively reasonably priced today, trading for about 18 times trailing earnings. Thus Vocus could be one for your watch list, perhaps alongside other promising ISPs and telcos from market leader Telstra (ASX: TLS) to niche provider Amcom Telecommunications (ASX: AMM).

Editor’s note: An earlier version of this article incorrectly listed Vocus’ dividend as 4 cents per share. It is, in fact, 0.4 cents per share. We apologise for the error.

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Motley Fool contributor Catherine Baab-Muguira has no financial interest in any of the companies mentioned in this article. Take Stock is The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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