Within the service sector, I like the telecommunication stocks the most. Telecommunication stocks in global markets are among my favorites. I expect the telecom service providers to be a strong outperformer in the next 5 years. While the returns might not be speculatively high, with solid dividends, they will surely beat other stocks with a large margin. I particularly think the E.U.-based telecom service providers are undervalued due to debt concerns. Here, is a list of 6 diversified telecommunication providers paying substantial dividends (Data from Finviz, and current as of the June 7 close):
AT&T (NYSE:T) founded in 1983 and headquartered in Dallas, Texas, provides telecommunication services to consumers, businesses, and other service providers worldwide. While AT&T is known to be a U.S giant, the company operates in more than 200 countries with wireless data roaming for laptops, and in more than 130 countries providing mobile broadband services. Its market cap as of the June 7 close is $179.5 billion. P/E ratio is 8.97, and forward P/E ratio is 11.93.
The company’s dividend yield is 5.67%, and it will pay $0.43 dividends per share in the next quarter. With a net profit margin of 16.26%, AT&T has one of the best net profit margins in the industry. AT&T and Deutsche Telecom AG announced that AT&T will acquire T-Mobile from Deutsche Telecom (OTCQX:DTEGF) in a cash and stock transaction, currently valued at approximately $39 billion. The Boards of Directors of both companies have approved the agreement. I expect the transaction to be approved subject to some competitive restrictions.
While the profits from voice communication services have more or less stabilized, the demand for data services is exponentially increasing. AT&T will surely benefit from the exponentially increasing demand for its new services.
Telefonica SA (NYSE:TEF) provides fixed and mobile telephony services. It operates mainly in Spain, the rest of Europe, and Latin America. The company was founded in 1924 and is headquartered in Madrid. As of the June 7 close, the market cap of TEF is $110.22 billion, and its sales revenue is $91.08 billion. The P/E ratio of the company is 7.25, and expected P/E ratio for the next fiscal year is 9.67.
Telefonica has a nifty dividend yield of 8.3%, and the company will pay $1.07 dividends to each share in the next quarter. When we look at the company’s dividend history, it increased dividend payments by six-fold in the last nine years. I think Telefonica is significantly undervalued due to its location in Spain. However, a high portion of Telefonica's income comes from South America, which has one of the fastest growth rates in world.
France Telecom SA (FTE) is the largest telecommunication company in France, and third-largest in Europe. The company provides fixed telephony and mobile telecommunications, data transmission, internet, and multimedia services. The company was founded in Paris, France in 1990. As of June 7, FTE has $56.24 billion market cap. The P/E ratio of the company is 10.21, and forward P/E ratio is 9.23 for the next year.
The current dividend yield of France Telecom is 9.12%, and the company will pay $1.17 dividends per share in the next quarter. FTE also has a good net profit margin of 10.3%. France Telecom announced on June 1 that the company set a five-year strategy to boost profits. According to this plan, France Telecom will focus on revenue growth and expects a cumulative EBİTDA of €45 billion in the next three-year period. Furthermore, the company plans to make investments worth €18.5 billion in order to improve and expand its networks.
Telecom Italia SPA (NYSE:TI) offers technological infrastructure and platforms including voice and data as well as the latest ICT and media solutions. The company operates in Italy, Latin America, Germany, Holland, and the Mediterranean basin. The market cap of Telecom Italia as of the June 7 close is $27.14 billion. The P/E ratio of the company is 6.13, which is the lowest ratio among these companies, and forward P/E ratio is 8.15.
Dividend yield of TI was 5.99%, and the company will pay $0.84 dividends to each share in the next quarter. Although the annual EPS growth was 2.09% in past five years, the annual expected EPS growth rate for next five years is 5.55%. As of the June 7 close, the shares were trading at $14.10, and analysts have a target price of $17.41 for the stock, implying 23.47% upward potential.
According to the latest news, Telecom Italia and Huawei have signed a long term agreement in different technological fields with the objective to improve fixed new generation network infrastructures, mobile devices and innovative applications, enterprise solutions and software. I think this co-operation will reduce input costs while improving efficiency of existing infrastructure.
Century Link Inc (NYSE:CTL) is the third largest telecommunications company in the United States. The company, which is headquartered in Monroe, Louisiana, provides broadband, voice and wireless services to consumers and business. The market cap as of the June 7 close is $24.23 billion. CTL’s P/E ratio is 13.54 and expected P/E ratio is 14.10 for the next fiscal year. Century Link has a nifty 7.19% yield and the company is expected to pay $0.72 dividend per share in the next quarter.
Analysts have a target price of $45.50 on the stock, implying an upside potential of 13%. The company had 4.75% annual EPS growth in past five years, and expects to grow by a slightly lower rate for the next five years. While CTL is not the best stock in the industry, for those looking for U.S. dividends only, it offers a nifty yield.
Telecomunicacoes de Sao Paulo SA (NYSE:TSP) provides communication, information, and entertainment solutions with a presence in Europe, Africa, and Latin America. The company, which was founded in 1998 and is based in Sao Paulo, Brazil, has 290.5 million customers as of March 2011. TSP's market cap as of the June 7 close is $15.04 billion. The P/E ratio of the company is 9.93, and forward P/E ratio is 12.02. TSP paid the highest dividend yield among the companies in this list. Last year's yield was 12.15%, and it will pay $1.80 dividend per share for the next half year. However, as of the June 7 close, the stock was trading at $29.70 which is 70.34% above the 52-week low and just 2.30% under the 52-week high. While the stock is still in high momentum, I would rather wait for a pull-back before diving in.
Disclosure: I am long Telefonica (TEF) CFDs [Contract for Difference].