The demand for dividends has pushed many popular stocks up to 52-week highs recently. The rising share price has pushed yields down. For example, Verizon Communications (NYSE:VZ) is now close to a 52-week high and trades for about 17 times earnings. The rising price of the stock has pushed the yield down to about 4.6%; not bad when compared to money market rates, but there are increasing risks at these loftier levels. Some investors and analysts believe that certain dividend stocks are in a bubble. For example, an analyst at Alliance Bernstein feels that investors might be overpaying for stocks like Verizon. When compared to international telecom companies, Verizon and AT&T (NYSE:T) certainly look expensive.
Here is a closer look at an international telecom stock that could be poised to outperform U.S.
based telecoms, Telecom Corporation of New Zealand Limited (OTCPK:NZTCY):
The company used to be a division of the New Zealand Post Office and was government-owned. However, in 1990, it became fully privatized. This telecom provides fixed line services, mobile phones, Internet, and other services and products. It serves over 1 million fixed line residential customers, over 2 million mobile phones, and over 800,000 fixed and mobile Internet and broadband customers in New Zealand.
Like Verizon and AT&T, Telecom Corporation of New Zealand plans to offer the ever popular iPhone 5. Customers who own the iPhone or other tablet devices tend to use a substantial amount of data services, and that can boost revenues for this company in the coming quarters as a wave of new iPhone 5s are sold.
It's all about the dividend: Telecom stocks are one of the most popular sectors for income investors. Telecoms typically have very stable cash flows, a solid business model, generous dividend yields, and revenues that are relatively recession-resistant, which makes these stocks more defensive and "bond-like." A U.S.-based investor who has services from AT&T or Verizon might feel most comfortable investing in these U.S.-based companies, but the "comfort" of investing in these stocks might not be the best for an income-focused portfolio. With AT&T and Verizon yielding about 4.6%, and trading for around 17 times earnings, the gains going forward might be limited. Telecom Corporation of New Zealand shares look like a much better value and could be poised to outperform these telecoms. It trades for about 13 times earnings and yields 7.5%. Over time that extra dividend yield can really add up, and the shares could see multiple expansion.
Here are some more positives about the company:
- While credit downgrades seem to be commonplace these days, this company remains strong. New Zealand Telecom has been assigned a credit rating of A-/Stable by Standard & Poor's and A3/Stable by Moody's Investor Services.
- During the 2012 calendar year, this company is planning a buyback of up to $300 million worth of stock (in New Zealand dollars). Stock buybacks reduce the number of shares outstanding, and that can boost earnings in the future. Significant buybacks also can be a sign that management believes the stock is undervalued.
Here are some key points for Telecom Corporation of New Zealand:
- Current share price: $10.34
- The 52-week range: $7.11 to $11.53
- Earnings estimates for fiscal year 2013: 76 cents per share
- Earnings estimates for fiscal year 2014: 96 cents per share
- Annual dividend: 73 cents per share, which yields about 7.5%
Here are some key points for AT&T:
- Current share price: $37.46
- The 52-week range: $27.41 to $38.28
- Earnings estimates for fiscal year 2012: $2.39 per share
- Earnings estimates for fiscal year 2013: $2.57 per share
- Annual dividend: $1.76 per share, which yields about 4.7%
Here are some key points for Verizon:
- Current share price: $44.52
- The 52-week range: $35.06 to $46.41
- Earnings estimates for fiscal year 2013: $2.49 per share
- Earnings estimates for fiscal year 2014: $2.83 per share
- Annual dividend: $2.06 per share, which yields about 4.6%
(Data sourced from Yahoo Finance.)
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. 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.
Disclaimer: No guarantees or representations are made. Hawkinvest is not a registered investment advisor and does not provide specific investment advice. The information is for informational purposes only. You should always consult a financial advisor.