Income Investors: 4 Dividend Kings of Telecom

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 |  Includes: CHL, ORAN, T, VOD
by: Vatalyst

In this time of global telecommunications, we looked at the 4 kings of the telecom sector:

AT&T Inc. (T): Shares are trading at $27.99 at the time of writing, in the middle of their 52-week trading range of $26.20 to $31.94. At the current market price, the company is capitalized at $165.87 billion. Earnings per share for the last fiscal year were $3.44, placing the shares on a price to earnings ratio of 8.15. It paid a dividend of $1.72 (yielding 6.10%).

AT&T has, for a long time, been the leading light in the United States telecoms industry, and its proposed merger with T-Mobile (OTCQX:DTEGY) will propel it into becoming one of the world’s largest telecoms services providers. Its main competitors, Sprint Nextel (NYSE:S) and Verizon (NYSE:VZ), lag some way behind in market breadth. Sprint is burning cash after its Clearwire (CLWR) purchase and lost money last year. Verizon shares are trading on a price to earnings ratio of 15.57, yielding 5.60% based on last year’s dividend of $1.95. With a higher yield, a less demanding price to earnings ration, and the potential for synergy and cost cutting through the T-Mobile merger, AT&T looks like a stock to have in any portfolio.

Vodafone Group PLC (VOD): Shares are trading at $26.23 at the time of writing, in the middle of their 52-week trading range of $22.95 to $29.75 At the current market price, the company is capitalized at $135.29 billion. Earnings per share for the last fiscal year were $2.49, placing the shares on a price to earnings ratio of 10.53. It paid a dividend last year of $1.92 (a yield of 7.30%). A utility company - for that’s what Vodafone has become (everyone uses a mobile phone) - that yields over 7%, trading on a price to earning multiple of just over 10 and with one of the best cash flows in the industry.

Further, it sells to the public both online and in its high street stores, while also offering internet services. When compared to others, such as Deutsche Telecom (OTCQX:DTEGY), Vodafone comes out a winner every time. Deutsch Telecom had earnings per share last year of $0.42, and trades at a price to earnings ratio of 30.60. It paid no dividend last year, and its gross margin of 42.95% comes down to 11.10% at an operating level (versus 32.84% and 14.57% respectively for Vodafone). Vodafone: Great shares with a great yield in a sector that provides good cashflow and steady income.

France Telecom (FTE): Shares are trading at $17.79 at the time of writing, at the lower end of their 52-week trading range of $17.21 to $24.60. Earnings per share for the last fiscal year were $1.68, placing the shares on a price to earnings ratio of 0.61. Its dividend last year was $1.45 (yield 8.10%)

France Telecom’s operating margin of 17.68% compares well to Vodafone’s 14.57%, and the shares of both companies trade on similar price to earnings ratios (10.61 versus 10.53). However, Vodafone has a far wider spread and depth of customers to whom it can on sell other services, such as internet access. Whilst the dividend yield on the shares of France Telecom is a little higher (8.10% versus 7.30%), I feel that the prospects for Vodafone to increase sales in diversifying areas as the pricing of mobile telecoms comes under pressure from regulators gives it the edge.

China Mobile Limited (CHL): Shares are trading at $48.92 at the time of writing, in the middle of their 52-week trading range of $43.51 to $53.87. At the current market price, the company is capitalized at $196.34 billion. Earnings per share for the last fiscal year were $4.75, placing the shares on a price to earnings ratio of 10.31. It paid a dividend of $1.85 (yielding 3.80%).

China is growing at a good pace, and as its people become more affluent, the use of mobiles will rise. China Mobile is a play on this market, and a good one. The shares trade at a lower price to earnings ratio than China Telecom Corporation (NYSE:CHA), and yield more than twice as much: the dividend paid last year by its rival was $0.98, yielding 1.70%. Operating margins are higher too, at 30.68% as against 10.77%. This is a good buy for all those investors looking to benefit from the personal choices that increasing wealth will give to the people of China in the years to come.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.