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When searching for the best dividend plays, I like to look for companies that have a certain amount of growth potential going forward. Not only does this usually mean that your income stream will increase over time, but it could greatly grow the value of your shares, something a lot of dividend stocks don't have a great history of. One of my favorites in this category that doesn't seem to get much attention from U.S. investors is China Mobile (NYSE:CHL), best known as the lone Apple (NASDAQ:AAPL) holdout in the Chinese mobile phone market.

About China Mobile

Most people who follow Apple in the market know that China Mobile is the largest mobile services provider in China, and the only major carrier in the country that doesn't (yet) carry the iPhone. Specifically, China Mobile has about 740 million subscribers, or about 63% of China's 1.2 billion mobile customers. To put this in perspective, the largest U.S. mobile carrier is Verizon (NYSE:VZ), who has just over 100 million subscribers, however the two companies' market caps don't really reflect the massive difference in subscribers. While part of this is due to Verizon's list of other services (broadband, television, landline, etc.), this is mainly due to the less expensive phones and plans used by Chinese consumers, which results in a much lower revenue per customer for China Mobile.

Yield and valuation

As far as the dividend yield goes, first bear in mind that this is a foreign company and the dividend payout varies a little in terms of U.S. dollars due to exchange rates. As a result, the semi-annual dividends paid by the company fluctuate a little bit, but seem to be trending upward at a 4-5% annual rate over the past five years. While this seems relatively slow increases, it does not reflect the rate of revenue growth that China Mobile has experienced over the past few years. In fact, since 2007 China Mobile has averaged revenue growth of about 12% per year.

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In other words, the company's payout ratio has decreased, while still maintaining a very nice dividend of just under 4% annually. This has allowed China Mobile to reinvest in its business and build up its cash reserves nicely. As far as the former is concerned, the company is upgrading its existing 3G base stations and adding 4G stations in response to the government's push toward higher standards. At the same time, since 2007 China Mobile has built up the cash on its balance sheet from under $11 billion (US) to about $64.6 billion, while keeping its debt fairly constant at just $4.5 billion. So, the company has a net cash position of over $60 billion, which greatly enhances the value of its shares, as well as the overall stability of the company.

Currently, China Mobile trades at 11.2 times last year's earnings, which I feel is very low for a few reasons. First, the company has plenty of growth potential that I feel is unaccounted for in its share price, which I'll get into more in the next section. Also, when subtracting the company's cash out of the share price, the business itself is being valued at just 8.1 times TTM earnings, an incredibly low valuation for a business with such potential.

Growth: Apple is a "when," not an "if"

Speaking of potential, the burning question on a lot of investors' minds is when China Mobile will start selling the iPhone. There are issues about compatibility with Apple's network, which it seems like the company could work out relatively quickly if it wanted to. Also, it was recently reported that Foxconn was directed by Apple to add China Mobile to the list of mobile carriers that could be receiving the new iPhones. While both companies seem to be very stubborn in terms of a deal, I adamantly believe that this is a "when," not an "if."

Once a deal is announced, the potential is tremendous for Chinese iPhone sales. A 1% penetration rate would mean 7.6 million iPhones (most likely the 5c) sold in China, which I think is a very conservative and achievable projection for the first year of availability. Also, if China Mobile continues to upgrade their networks to the point where they are the most advanced in China, there will almost certainly be some customers who make the move to China Mobile from the other major carriers.

Ultimately, an Apple-China Mobile deal is a screaming win/win for both companies, and quite frankly, I'm not really sure what the holdup is at this point. The CEOs of both companies have expressed their desire to get a deal done, Apple made a lower-cost iPhone, and the companies have been in negotiations for what seems like forever.

More growth: what the growing Chinese middle class means to China Mobile

Even without an Apple deal, the economic trends in China should produce excellent revenue growth for China Mobile even if they don't see any new customers. It has been well publicized that the Chinese middle class has been growing rapidly for some time now, and the average income in China has been rising very quickly. Not only does this imply that more consumers will be able to afford higher-end phones (smartphones), but they will begin to spend more on a recurring basis because of the increased capabilities of the higher-end phones. For instance, when upgrading to a smartphone, generally a data plan is added at an additional cost, and thing like phone insurance become much more prevalent. Generally, the more capable a mobile device is, the higher your bill will be on an ongoing basis. Just compare your current smartphone bill to your last phone bill with a standard cell phone. The growth from data revenue alone should keep China Mobile's total revenue rising for at least another decade or so as smartphones become more and more affordable to the Chinese middle class.

Conclusion

While many American investors are hesitant to purchase shares of individual foreign companies, China Mobile is an exception, and a viable alternative to the U.S. mobile leaders, AT&T (NYSE:T) and Verizon. The current 4% dividend yield should continue to rise, and is low enough of a payout ratio to allow the company to invest in the latest technologies and stockpile some cash for future opportunities. As quite possibly the most attractively valued mobile carrier in the world, China Mobile deserves serious consideration for your dividend portfolio.

Disclosure: I am long AAPL. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.