The Motley Fool

SMS’s 7% dividend yield

Information technology services provider SMS Management & Technology (ASX: SMX) has seen its shares fall 6.8% today in the wake of a company presentation by Chief Financial Officer Mr Rick Rostolis at the Morgan Stanley 2013 Emerging Companies Conference.

The company announcement wasn’t marked as “sensitive”, however in light of the savaging of the share price perhaps in hindsight it should have! The market would appear to be unimpressed with the last few slides of the presentation which addressed the March quarter results and expectations for the June quarter. Mr Rostolis said that SMS now expects five larger multi-year projects which were scheduled to have made a contribution to FY13 earnings to instead first make a contribution in early FY14.

While the presentation amounted to a downgrading of expectations, investors were already aware that the IT services sector is doing it tough at present, as governments and corporations delay critical spending, in some cases until after the election. For long-term investors the mark-down to SMS’s share price could offer an attractive entry point. The company is debt free, is a tier one provider of IT services and given its excess cash pile, has the potential to maintain its dividend. On current pricing, SMS is trading on a 7% dividend yield.

SMS is exposed to the growing demand for cloud computing. The cloud and increased Internet usage has the potential to benefit a number of companies as diverse as Integrated Research (ASX: IRI), Next DC (ASX: NXT) and iiNet (ASX: IIN). While that doesn’t guarantee profits, it could make sense for investors to get exposure to companies which stand to benefit from the increased demand for the cloud and internet services.

Foolish takeaway

IT software and hardware infrastructure are essential to modern day businesses. While some companies can delay upgrading to better IT systems for a period of time, in the long run they must inevitably ‘spend money to make money’ and this gives IT service providers such as SMS a positive future outlook.

In the market for high yielding ASX shares? Get “3 Stocks for the Great Dividend Boom” in our special FREE report. Click here now to find out the names, stock symbols, and full research for our three favourite income ideas, all completely free!


More reading

Motley Fool contributor Tim McArthur owns a share in SMS.

FREE REPORT: Five Cheap and Good Stocks to Buy now…

Our Motley Fool experts have FREE report, detailing 5 dirt cheap shares that you can buy today.

One stock is an Australian internet darling with a rock solid reputation and an exciting new business line that promises years (or even decades) of growth… while trading at an ultra-low price…

Another is a diversified conglomerate trading near a 52-week low all while offering a 2.7% fully franked yield…

Plus 3 more cheap bets that could position you to profit over the next 12 months!

See for yourself now. Simply click the link below to scoop up your FREE copy and discover all 5 shares. But you will want to hurry – this free report is available for a brief time only.