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TheLongerView profile picture
My only beef with what I think overall is a good article is that the normal policy among SA analysts is to also discuss the downside risk. The author neglected to do that. Any wise investor's first question is: "What is the downside?" So, I am very grateful to the many folks who have commented by adding some details about the downside. And, yes, it is "lead", not "led".

That being said, I bought TEF ADR at 3.74 when The Wolf Report told me to last year. I am sitting on a 12% gain before dividends and ain't selling anytime soon. Buy low. Sell high. Happy investing! :-)
richard48 profile picture
Author is wrong about receiving a credit. Only a partial credit is allowed and is $300 for a single person and $600 for a joint return. So anyone with more than one foreign stock in their portfolio probably receives no credit on the double taxation in Spain and the U.S. and if you invest a decent amount your foreign taxes will exceed the $300 or $600 limit.

Also, VOD operates a large International phone network and Spain is a loser for them due to the competition.
gardner555 profile picture
@richard48 need to do a foreign tax credit form 1116 n should get full credit or a carry over, depending on individual situation. Get a good accountant...
cesar profile picture
1) For all its "growth opportunities" there is little top line growth in the past 4 quarters. And in the past 4 years revenues have dropped (I guess due to asset sales?).
2) TEF stock price has been in decline for >15 years so why is it different now?
3) I need to know more about management - new blood, reputation, history of performance?......new executive incentive compensation?

TEF might be a good opportunity but I need to know more
ziaranch profile picture
This is a very forgettable investment idea.
jsantmyer profile picture
And the number 1 reason you should stay away- it is Spanish company.

Moving to Q3, economic activity has likely softened amid rising interest rates, waning savings and global headwinds.

Available data is downbeat: Reigniting headline and core inflation, coupled with falling manufacturing and services PMI readings, in July, bode ill for activity.

In politics, a SOCIALIST was chosen as speaker by Congress in August with the support of regional parties. This suggests that the currently-ruling socialist party is likelier to form a government than the conservatives, who, as the narrow victor in July’s elections, will have a first shot at forming a government in September. If both parties fail to form a government, another election will be held in January.

All of this translates into uncertainty and volatility, IMO. No thanks…
Many good companies offer better yields, and we don't have to deal with foreign tax credits. Stay away.
Samuel Smith profile picture
@Verima thanks for sharing. In the telecom sector, there aren't many good companies with better yields.
What are the taxes on owning the Spanish Co (TEF) in a brokerage vs a ROTH?
Samuel Smith profile picture
@tensionpnuemo_69 if you hold in a Roth you can't get back foreign tax withholding. In a taxable account, you can claim a foreign tax credit on your tax return.
The only thing you need to know is that AT&T is an American company that does business in the USA. Spain not so much. I’m not sure an account in Spain is as valuable as an account in Texas. Also you don’t have the ADR problem to deal with.
Samuel Smith profile picture
@Paulelang25 You can buy TEF directly on its exchange in Europe.
ScottHB profile picture
The dividend from T may well be on shakier ground than that of TEF but there are headwinds with TEF for a U.S. investor that don't exist with T, to whit, currency risk and foreign taxes that can't be recovered for holdings in a retirement account. Without taking any position on its merits, I'd add that Verizon (VZ) should be considered as well from a yield standpoint.
Samuel Smith profile picture
@ScottHB thanks for sharing. I agree that TEF should not be held in a retirement account. Currency risk is a bit overstated as TEF's primary currency - EUR - is still considered a good currency (relatively speaking) and is likely historically suppressed with the war in Ukraine. Meanwhile, the USD looks quite expensive right now.
I had TEF in my portfolio in 2020 but soon got out of it from frustration. It has just stayed at the same level since then. I am not sure what is now more in favour for them
Samuel Smith profile picture
@cwaddle given what has happened to the broader telecom market over that period of time - especially T - that is a pretty big win, especially when taking into account the attractive dividend.
Nick Cox profile picture
TEF is one of the worst performing major stocks over any time-frame you care to mention.
I don't see any reason to think that has changed and all the articles in SA recommending a BUY over the past 10 years have been mistaken.
It has the same poor management and is operating in the same non-growth telecoms sector as before.
Samuel Smith profile picture
@Nick Cox it does not. TEF has new management that has done a remarkable job of turning the business around the past few years in which it has outperformed T and the broader telecom space quite meaningfully.
Nick Cox profile picture
@Samuel Smith
Well looking long-term it has been a terrible investment.
Down 45% in the past 5 years.No wonder the dividend yield goes up s the value goes down.
Since first quoited in 2001 down 80%.
One issue with TEF is that the dividend is taxed highly and also the ADR charges are high due to the low stock price. The charges are based on shares, not value. A significant holding requires many shares. The resulting dividend is not the headline rate.
Samuel Smith profile picture
@Kigp Don't by the ADRs then and hold it in a taxable account.
@Samuel Smith Spanish tax is 20% and the ADR charge was 9.4%. I know you say buy the offshore stock. I liquidated after the last dividend and it was in a taxable account.
airlarr profile picture
@Samuel Smith Your report and comments are excellent. SA is primarily USA readers. Buying a foreign listed stock is not easy at Schwab, Fidelity or Vanguard. Please expand more how the average SA reader should buy TEF. I bought TEF in my IRA. At Schwab. Sounds like a mistake. By the way I am a financial veteran, just an example of the complexity.
dhughes327 profile picture
Thank you for an excellent article and I will start watching TEF. Having spent a lifetime in the cellular business for a regional carrier, I can tell you that if Amazon does decide to enter the space that it will be a reseller off of the major carriers which is still positive for T, VZ, and TMUS although the market won't understand that. There is better money in whole-selling airtime than retailing due to the handset and customer service expenses.
Samuel Smith profile picture
@dhughes327 glad you liked the article!
Recycled Beancounter profile picture
Hmmm…So are we to ignore the fact that a week ago SA issued a health warning on TEFs dividend noting warning signs that have seen 2/3 of companies with such warning signs cut their dividend?

And are we also to ignore managent’s comments on the led [sic] cabling issue.

While you might argue “they would say that” on the lead cabling, you can’t ignore the health factors SA raised.
Samuel Smith profile picture
@Recycled Beancounter I don't find the SA "health warnings" as being very useful.
Recycled Beancounter profile picture
@Samuel Smith so you take their shilling for writing their articles on a platform you don't really respect. Interesting...
Samuel Smith profile picture
@Recycled Beancounter I didn't say that I didn't respect Seeking Alpha as a platform. I just said that I don't find their computer algorithm as being very useful. Those are two very different things.
While one may subjectively determine that TEF may be the less ugly girl at the dance, that does not change the fact that they are still ugly.
Samuel Smith profile picture
@Dollarsandcents if all you do is look into the rearview mirror, perhaps.
Owned both over a decade. Overall Tef has been even worse than T to own.
Samuel Smith profile picture
@Whiterabbit66 I'm sorry to hear that. I definitely would not have bought either one a decade ago.
EV/EBITA of AT&T is : (7.18 B x 14.53 + 128 B net debt) / 46.48 (last 5 years) is 5. Cheaper than Telefonica.

Source: www.morningstar.com/...
Samuel Smith profile picture
@Gabs_101 well if you go off of the past five years, perhaps, but this analysis doesn't do that. I used the consensus NTM estimates, which are far more relevant.
@Gabs_101 Does this take into consideration the spinoff of the Time Warner business? Stock in Discovery/ Time Warner was issued to shareholders of T, which was a reduction in the price of T shares. I didn't read the link, but it is something that people need to take into account when making a price comparison going back for T. I believe that my cost basis was adjusted in my brokerage account as I owned T before the spinoff.
EPS and stock price has done nothing but go down since 2008. That's probably a strong indication of a poorly performing business. So its not just interest rates that is depressing the stock price. Why an earth would you buy this over a company that has positive growth?
Samuel Smith profile picture
@petenh are you talking about TEF or T?
Nils de Graaf profile picture
"Another sign that TEF's dividend is on firmer footing than T's is that - despite having a lower leverage ratio - TEF's 2022 free cash flow yield is a whopping 20.7% of its current market cap compared to T's 2022 free cash flow yield of 15.7%. This once again implies that its dividend is much better covered by free cash flow than T's is."

Who cares about free cashflow versus market cap? We are talking about bonds, not shares, so why is this relevant?
Samuel Smith profile picture
@Nils de Graaf who is talking about bonds?
Samuel Smith profile picture
@yblarr thanks for sharing your opinion
Littlebeef2 profile picture
@yblarr But Democrats are not?
@Littlebeef2 But Democrats are not?
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