France Telecom: Some Government Ownership Of This 10% Yielder Is A Positive

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France Telecom (FTE) shares have been impacted by the European debt crisis, the weak economy in France, and a dividend cut in 2012. It has also been impacted by competitors that have introduced low-cost mobile phone services. France Telecom provides a wide range of telecommunication services, which include voice, data, mobile phone and more. It also operates in many countries outside of France, which gives it some geographical diversification. This stock has been trending higher off of recent lows, but it has dropped from about $12 to just around $11 as concerns over Europe intensified in recent days. Here is a closer look at the company and why it makes sense to consider this cheap telecom stock, especially on dips:

The dividend cut in 2012 may not have been popular with everyone, but it was a smart management move that will benefit the company and its shareholders in the future. That is because the extra cash flow will now go toward paying down debt and this will reduce risks and make the balance sheet stronger. While the French and European economy may remain stagnant or even weak for the next year or more, telecommunication services are often one of the last expenses that businesses and consumers want to cut. Having an Internet connection or a mobile phone is a basic need for many companies and individuals. Because of this, demand for the products and services that France Telecom offers should remain relatively strong, especially as fears of a debt crisis seem to fade.

France Telecom is facing new competitive pressures from "Iliad," which provides low-cost mobile phone services. Iliad started to offer phone services for the budget-minded in early 2012 and this company has captured around 5% of the market in a short period of time. However, France Telecom remains a top choice for many customers, and it has growth potential in countries outside of France. It recently announced a joint venture in Qatar with Sheikh Fahad Bin Ghanem, which will allow it to expand into the Middle East. It also has operations in Libya, Egypt, and some countries in Africa, which could boost growth rates in the future.

While some investors dislike government ownership in any company, in this case it could be beneficial. The French Government owns about 13.5% of France Telecom. Since it owns this stock and receive dividend income from this company, the French Government might be more lenient when it comes to regulations and rate hikes that could benefit France Telecom.

When compared with its U.S. counterparts, France Telecom looks downright cheap with a yield of over 10% and a price-to-earnings ratio at around 7. By contrast, AT&T (NYSE:T) and Verizon (NYSE:VZ) both yield about 5% and trade for around 16 times earnings. France and Europe will probably see better days in the future, and investors who buy this cheap stock now might be rewarded in a future rebound. In the meanwhile, the high yield will pay investors while waiting for a higher share price.

Here are some key points for FTE:
Current share price: $11
The 52-week range is $10.20 to $15.87
Earnings estimates for 2012: $1.84 per share
Earnings estimates for 2013: $1.67 per share
Annual dividend: about $1 per share, which yields around 10%

Data sourced from Yahoo Finance. No guarantees or representations
are made.

Disclosure: I am long FTE. 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: 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.

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