Ringing In The Dividends - European Style

Includes: ORAN, PT, TEF, TI, VOD
by: StockMarketPundits

Following up on one of our articles focusing on the American telecoms and their dividends, we thought now would be an opportune time to look to Europe for some high yielders. For investors looking to shore up their portfolios and seek high-yielding equities, we think that the European telecoms could provide portfolios with a dependable revenue stream in the months and years ahead.

France Telecom (FTE)

France Telecom is one of Europe’s largest telecoms. Many worldwide know the company via its subsidiary, Orange, which the company has used as a rebranding effort to bring its various brand names under one roof. Orange is best identified as one of Europe’s larger mobile operators. The company had $66 billion+ in revenue last year allowing it to fund its dividend, debt and other needs. France Telecom has spent the past decade repairing the balance sheet after its shopping spree during the dot-com/telecom boom of the late 1990s, and now investors have a solid company (after the restructuring) in which to invest.

The current payout ratio for FTE is 61%. The company’s shares, which are traded on the NYSE, have a P/E of about 11 with a forward P/E of 7.7, according to Yahoo Finance. The shares, currently trading at $17.79, are near the 52-week low of $17.21 allowing investors a nice entry point to secure the dividend of $1.45. With the current dividend and shares near a 52-week low, the company’s shares currently yield 8.1%. Investors should note that the ex-dividend date is August 31, 2011, when looking at purchasing shares to secure the dividend.

Vodafone (NASDAQ:VOD)

Vodafone is an international player in mobile telecom, and one of the largest telecom companies in the world with a $135 billion market cap. The company owns some of the most valuable mobile networks in the world, and is a key player in many of the world’s largest markets. One of the company’s crown jewels is its 45% stake in Verizon Wireless (NYSE:VZ), a joint venture with Verizon Communications, which will distribute a dividend to the two partners enabling VOD to distribute a special dividend to shareholders in the 1Q of 2012. The company should have more detailed information in November for shareholders.

With the current dividend at $1.92/share Vodafone shares provide investors with a yield of 7.3%. The 7.3% yield does not include the special dividend the company will issue at a later date, but rather the regular dividend. The company has a payout ratio of 54%, which gives the company plenty of room to increase payouts to shareholders moving forward. Shares are trading at $26.23, near the middle of their 52-week range.

Portugal Telecom ADS (NYSE:PT)

Portugal Telecom operates in Portugal, Brazil and Africa. Portugal serves as the cash cow, Brazil serves as the area for new organic growth and Africa (sub-Sahara) serves as an area for strategic growth and acquisitions that the company is pursuing.

The company is not for the investor unwilling to take on a bit of risk to secure the high yield and even potential capital gains as the stock has been beaten down. The company’s debt rating was recently downgraded by Moody’s, highlighting the heavy debt load. The company has the riskiest dividend of those mentioned here, however with potential deleveraging ahead and capital gains and dividend streams available, the company could be a nice addition to an already stable portfolio. Near a 52-week low, the shares currently yield 11.5%.

Telefonica (NYSE:TEF)

Telefonica is one of Portugal Telecom’s partners, but has a much healthier balance sheet. The company’s stock has been battered with the general market and now trades at a P/E of about 6.5 (the forward P/E is almost 8). The dividend yield has crept up to 8.8% as the shares have drifted near 52-week lows.

Telefonica is a company investors can get behind due to their strong fixed line business in Europe, and growth prospects in Latin America. The company has been putting deals together and laying the groundwork for future growth. China Unicom is even among those with a strategic alliance with TEF.

Telecom Italia (NYSE:TI)

Telecom Italia has a dividend of $0.62/share and yields 5.4%. The $23 billion market cap company has its share of debt, however it has healthy cash flow which can hopefully be deployed in future years to lower the overall load. According to Yahoo Finance, TI has a payout ratio of only 23%, so if the company can bring down the debt load future payouts to shareholders could increase.

TI is looking to Latin America for future growth and has other assets in Europe outside of Italy. The company has web offerings, owning a popular web portal and MTV joint venture delivered over mobile networks in Italy.

With the fire sale taking place in Europe many good companies are on sale, including those with attractive dividends. One thing investors should keep in mind when purchasing these for their dividends is how the dividends will affect their portfolios and tax situations. Having foreign taxes withheld in a nontaxable account can actually result in less income for you as opposed to holding those securities in a taxable account due to one’s ability to reclaim the foreign tax withheld when filing an individual return with the Internal Revenue Service.

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