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Investing in Dividend counters and Trades for the short term
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  • High Yield Investing:Comparing Telecom Stocks Around the World 8 comments
    Apr 27, 2010 7:16 PM | about stocks: T, VZ, ORAN, CHT, VOD, TEF, CHL
    Note to all:Figures and Data used in this analysis can be found in this google spreadsheet here >>

    When it comes to high yield investing, investors normally approach a group of equities that gives above average dividend income. These include MLPs, REITs, Utilities and Business Trusts.

    One particular Segment of Utilities are the Telecom Stocks. They have high barriers to entry yet require a substantial amount of capital each year to operate. But what you get in return are above average yields.

    I got curious when i was investigating Singapore Specific Telecom Stocks, Singtel , M1 Limited and Starhub. I am curious how well they stack up against the international competition.(Folks will be interested in this analysis about Singapore’s 3 telecom stocks >>)

    So here i compare them against the very best of the international telecom stocks:

    1. China Mobile -  Biggest Telecom operator in China operating in 31 provinces
    2. Vodafone – Big Global Telecom Player.
    3. France Telecom – Big Europe Telecom Player
    4. AT&T – Big American Telecom Player
    5. Verizon – Big American Telecom Player
    6. Chung Hwa – Big Taiwan Telecom Player
    7. Telefonica – Global Emerging Market Telecom Player

    We are going to compare then now.

    Margins

    margins High Yield Investing:Comparing Telecom Stocks Around the World

    In terms of margins, whether it is Net Profit Margins or Operating Cashflow Margins, Telcos generally are pretty high. But do note that in telecommunication this is a highly competitive space and you would expect those places with high competition to have lower margins. The american telcos such as AT&T and Verizon are having lower profit margins but in terms of operating cashflow margins they are much aligned with the other telcos. The Asian Telcos look to have better margins overall.

    Top 3:

    1. China Mobile

    2. Chung Hwa

    3. Singtel

    ROE and ROIC
    Click to view larger image

    Click to view larger image

    Here is interesting. When we use ROE and ROIC we want to see how hard a lender or an equity investor’s $1 work in each investment. Most of the Telco achieved high ROIC (RED). ROE(BLUE) is lower but which ever matrix you use it seem to indicate that those telcos that diversified overseas and expand such as Singtel and Vodafone actually have lower ROIC and ROE.

    Why is Starhub’s ROIC and ROE so high? Primarily because they are highly leverage in that their long term debt out numbers their equity thus providing that leverage effect.

    Top 3:

    1. Starhub

    2. Mobile One

    3. China Mobile

    Dividend Yield, Free Cashflow Yield
    Click to view larger image

    Click to view larger image

    Here is what everyone is interested in: The current yields. We have 4 matrix here:

    Operating Cashflow Yield – Amount of cashflow generated by the company for that year base on core business

    Dividend Payout Yield – Amount of dividends paid out to investors for that year

    Capex / Market Cap – Capital Expenditure for that year divided by Market Cap

    FCF or Free Cashflow Yield – Operating Cashflow deducting Capital Expenditure

    A safe and well operated company will pay a high dividend that is less than free cashflow. So the RED bar should be less than the YELLOW bar. A better company is where the difference between the RED bar and YELLOW bar is greatest.

    When we look at our group of telcos, almost all of them pay dividend that is lower than their free cashflow, which is what i like best about telecom stocks as an high yielding  income investment.

    Still don’t get it why France Telecom and Verizon have such a high free cashflow in excess of 10%!

    Top 3 (FCF – Div payout)

    1. France Telecom

    2.Verizon

    3.AT&T

    Top 3 (Div Yield)

    1. Starhub (7.91%)

    2 France Telecom (6.97%)

    3. Verizon (6.41%)

    Debt to Equity and Debt to Asset

    debttoassetandequity High Yield Investing:Comparing Telecom Stocks Around the World

    Here we see how highly leverage each of these companies are a clear link between those companies with the highest yields also tends to be the ones with the highest Debt to Equity.

    However, Debt to Asset is stable as all of them have lower than 45% of Assets as debts.

    Top 3

    1. China Mobile (no long term debt)

    2. Chung Hwa (no long term debt)

    3. Mobile One ( no long term debt)

    Valuations
    Click to view larger image

    Click to view larger image

    How cheap or expensive are these stocks right now?

    Top 3 Lowest PE

    1. Telefonica

    2. Starhub

    3. Mobile One

    Top 3 Lowest PTB

    1. Vodafone

    2. AT & T

    3. Chung Hwa

    Top 3 Lowest EV/Operating Cashflow

    1. Verizon

    2. France Telecom

    3. Starhub

    I run a free Singapore Dividend Stock Tracker available for everyone’s perusal. It  contains Singapore’s top dividend stocks both blue chip and high yield stock that are great for high yield investing. Do follow my Dividend Stock Tracker which is updated nightly  here.

    Disclosure: Starhub, M1 Limited
    Themes: Starhub, M1 Limited, Singtel Stocks: T, VZ, ORAN, CHT, VOD, TEF, CHL
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Comments (8)
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  • Interesting. I have been looking at the growth in mobile data and wondering why so many global telcos are on relatively low valuations with high yields.

     

    It doesn't make a lot of sense to me. I must be missing something...

     

    Your analysis though included a couple I hadn't thought about. But further issues that I do think may matter are geographically where they earn their money - for instance in the case of France Telecom or Vodafone in Euros - and to what extent their revenue is PSTN driven as opposed to mobile data driven.
    14 Jun 2010, 03:02 AM Reply Like
  • Author’s reply » @SMSFs,

     

    they do have their bad points really but i think u need to think that the top stocks in the world aren't telcos that tells you more about the business.

     

    this article is to illustrate the comparison of different telcos in the world.

     

    for my view of telcos fundamentally do take a look at this article >> www.investmentmoats.co.../
    14 Jun 2010, 10:40 AM Reply Like
  • Hello, interesting article! I found it quite useful for myself.
    I found one resource concerning free cash flow, so suggest you to check it out: investinganswers.com/t...
    22 Jun 2010, 09:04 AM Reply Like
  • Can someone please clarify why institutional ownership is low for telecom stocks e.g VOD or similar other international companies
    they have positive cash flow,high div ,good rev so why institutional investors not interested i wounder?
    7 Jul 2010, 10:15 AM Reply Like
  • Author’s reply » REIT, what is your metric for measuring institutional interest?telcos have their good points but also their bad points.

     

    perhaps when i wrote this article, it is during a great timie for telco haha.
    21 Jul 2010, 08:25 AM Reply Like
  • yes every sector can have good and bad points ,but i dont understand why international telecom companies are out of favor for the inst. investors.

     

    inst.ownership is single digits for many international companies why??
    21 Jul 2010, 09:04 AM Reply Like
  • cheap stock as of today 21/07/2001 consider the following
    PTNR , TKC, CHL ,CEL

     

    and at a lower price say (15%) lower i will add more of below list
    VOD, NZT, MTA , TLK
    21 Jul 2010, 10:36 AM Reply Like
  • Author’s reply » CEL and PTNR are in isreal. there is a stability problem.
    21 Jul 2010, 11:30 AM Reply Like
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