Can Nokia Sustain Its Dividend In 2012?
Christopher is a member of The Motley Fool Blog Network -- entries represent the personal opinions of our bloggers and are not formally edited.
Nokia is the largest and most successful manufacturer and distributor of cellular handsets and its smart phone sales have dominated the global market for years. In recent years, however, competitors have challenged Nokia ?(NYSE: NOK) from multiple directions with more efficient and user friendly platforms and handsets. Apple (NASDAQ: AAPL) and Google (NASDAQ: GOOG) have threatened Nokia with the iOS and Android platforms which have excelled in the United States market against Nokia’s defunct Meego and Symbian platforms. Will Nokia’s recent partnership with Microsoft (NASDAQ: MSFT) allow the smartphone manufacturer to be able to fight back in 2012 and retain its top position or will Nokia begin on a long path into obscurity? More importantly; can Nokia continue to reward its shareholders or will its dividend suffer this year and in years to come?
Despite Nokia’s struggles and declining sales, it still maintains the top position in the market, but it cannot sustain the number one place for much longer. In the fourth quarter of 2011, the company reported that sales were down yet another 8% while Google and Apple have both fought for dominance. Apple recently became the third largest smartphone producer in the world and its platform surpassed Google’s Android platform in a battle that is not likely to be over soon. Nokia seems to be the only loser in this war, however, as its drop in sales correlates nicely with the gains that Apple and Google have been seeing.
To further exacerbate Nokia’s situation, the majority of its sales have been on its low margin products such as feature phones and its profits have suffered greatly as a result. Nokia posted a net revenue of $5.6 billion in 2008 compared to $1.8 billion in 2010 and while it still maintains over $52 billion in assets, the cellular giant is beginning to take on water. It was recently ranked #4 on the Ten Most Hated Companies in America due to its loss of half its stock value, fleeting sales and the real possibility that Samsung could steal its #1 spot.
Dwindling numbers against a backdrop of increased competition make Nokia seem very unattractive, but I think that its deal with Microsoft may be exactly what Nokia needs to save itself. Its new Lumina series phones will feature Microsoft’s Windows 7 Mobile platform and give both companies a window of opportunity. Microsoft has tried desperately in the past to gain a foothold in the smartphone market with which it can go after both of its rivals— Google and Apple. Nokia has presented Microsoft with the perfect delivery mechanism for its platform due to its 30% market share.
Initial sales of the Lumina series phones in the last months of 2011 were disappointing, to say the least, but the phone has received extremely strong ratings from technology blogs across the internet. Some analysts feel that it will only take some time before the phones gain some popularity, but others are pessimistic due to the failure of Nokia’s past launches. I think that you could flip a coin on this company’s fate as it has just as much of a chance at succeeding as it does at failing.
Nokia declared its annual dividend for release in May at $0.18 per share, which is a significant drop from its $0.48 per share dividend it paid out in 2011 and $0.41 per share dividend it paid in 2010. This signifies that this stock is definitely moving in the wrong direction, but I don’t believe it is time to throw in the towel in this fight just yet. Nokia stock is currently flirting with its thirty day simple moving average and approaching its six month average. If it begins to sell its Lumina phones, 2012 could prove to be a turnaround year.
Too much hangs in the balance over a single product for any investor to feel comfortable, so I wouldn’t take a position here by any means. If I had already invested here, however, I wouldn’t want to bail while the stock is teetering on the brink of a strong move. There isn’t much more that can be lost here and I believe the stock has bottomed out at its current value of $5 per share, meaning that the only real direction I see Nokia going, if it does move, is up.
Nokia has already proven that it is no longer a reliable dividend stock with news of its newly declared dividend, so I believe that its use as a dividend stock is questionable and this stock is no longer worthy of an income investing strategy. If it does happen to begin selling phones, however, and its value passes $6 per share, I would strongly suggest taking a position at that point before it begins its ascent. Until that point, I believe that taking a position here is as risky as flipping a coin and I’ve never had much luck with coin tosses in my life.
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