Calling Down Under-2 Foreign High Dividend Stocks In The Telecoms Sector

By Robert Hauver

The Telecoms sector has stood out as one of the few sectors that maintained its high dividend yields through the financial crisis.  Indeed, both wireless and land-line dividend paying stocks in this sector have continued to reward investors with high dividend payouts, even as other sectors, (notably Financials), had to eliminate or slash their payouts:

SP-2010-SectorDivAvgs

(Data Source: Standard & Poor’s)

As the above table illustrates, the Financial sector slashed its dividends over 68%, and several sectors’ current dividend yields fall below the current S&P avg. dividend yield of 1.81%.  An interesting development, (hopefully an ongoing trend), is that the Tech and Energy sectors actually increased their avg. dividend payouts by over 32% and 42% respectively.

If you follow the logic of diversifying your portfolio overseas, but still maintaining an attractive dividend yield, here are 2 foreign Telecoms that are listed in our High Dividend Stocks by Sector Tables, that you may want to research further:

New Zealand telecom (NZT): NZT is the dominant firm in the New Zealand market, and is made up of five customer-facing businesses: Chorus; Telecom Wholesale & International; Telecom Retail; Gen-i and AAPT..

NZT pays dividends quarterly, and their next ex-dividend date is Feb. 23rd, and the payment date is March 18th, with a payout of 13.31 cents/ADS. (One ADS American Depository Share equals 5 ordinary New Zealand shares.

For 2011 NZ Telecom will target a dividend payout ratio of approximately 90% of adjusted net earnings. Subject to there being no adverse change in operating outlook, a dividend of 3.5 cents per share, (5 x this for ADS shares), will be paid for the first three quarters and the dividend for the fourth quarter will be set to reflect the full year targeted payout ratio.”   Reduced tax rates (often 15%) generally apply to non-resident shareholders who are entitled to the benefit of an international tax treaty (such as US, Australian and UK shareholders with less than 10% holdings in Telecom – for which NRWT is deducted at 15%). NZT will also pay a supplementary dividend of 0.6176 cps to those shareholders who are not tax resident in New Zealand.” (Source: NZT website)

Telstra (TLSYY): Australia’s dominant market player, and offers a full range of services and compete in all telecommunications markets throughout Australia, providing more than 8.6 million Australian fixed line and 10.5 million mobile services, including 8.2 million 3G services.

Telstra also owns 50% of FOXTEL, whose international businesses include:

  • The Telstra International global networks and managed services business that has more than 1,100 Points-of-Presence throughout Australia, Asia Pacific, Europe and the U.S.
  • CSL– Hong Kong’s leading mobile network operator.
  • China search and advertising businesses, including the Sequal businesses – Pcpop, IT168, Autohome and CHE 168, the Octave businesses – Sharp Point and ChinaM and LMobile and China Bar.
  • 50% cable joint venture with PCCW in REACH – a premier provider of international voice and satellite services in Asia.

Telstra will benefit from the newly Government-approved plan to build a nationwide broadband infrastructure.

Here’s an excerpt from the Wall St. Journal’s Feb. 10, 2011 interview with Jason Brady, CFA, Managing Director for Thornburg Investment Management:

TWST: What are some of your major holdings right now in each fund and why do they hold those positions?

Mr. Brady: Let’s start with the Income Builder. Our bigger holdings are dividend-paying stocks. One of the biggest overweights on stocks we have from the sector perspective is global telecom.

Our largest holding right now is Telstra (TLS.AX,TLSYY), which is basically the incumbent telecom provider of Australia and is not tremendously expensive. Using Bloomberg numbers, the forward p/e is about 10. The gross yield before taxes is about 14%. Obviously, there are some taxes and other fees there, but there is a significant income component, and we believe that this company has stable cash flows and earning power. If you are getting a 10%-plus income stream and a 3% to 5% earnings growth, that is a nice holding. It is not a tremendously complex business. That’s a pretty attractive holding for us. It’s got some growth, it’s certainly got income, and that combination and the parameters of the company make it one of our largest holdings. (Source: Wall St. Journal)

Although their interim 6-month earnings ending 12/31/10 declined, Telstra picked up almost 1 million additional customers in the past 6 months, (around half of them for mobile services), their highest subscription rate in the past 10 years.

Telstra pays dividends twice a year, in February and August. Their next ex-date is approx. Feb. 18th, with a payout date of March 25th., and an approx. dividend payout of $.70/ADS, depending upon currency exchange.  (One Telstra ADS = 5 Australian ordinary shares.)

Telstra trades in the U.S. on the Pinksheets, and New Zealand Telecom ADS’s also trade in the U.S., on the NYSE.

Here are selected metrics for both firms:

NZT-roe-2011-02-11

In addition to offering higher dividend yields than industry avgs., both firms appear to be conservatively leveraged, and have high gross margins.

Valuations:

NZT-PEG-2011-02-11

Disclosure: Author is long shares of NZT and TLSYY.

Disclaimer: This article is written for informational purposes only.