International Telecoms Are a Haven For Yield
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Income is hard to come by in today’s market. Despite the recent hiccups, the Dow Jones Industrial Average and the S&P 500 Index sit near historical highs. As a result, dividend yields are at depressed levels, and those investors who need income—namely, those in or nearing retirement—are in a tough spot.
An interesting area that you might not have previously considered for hefty income is international telecoms, who, like their American counterparts, produce stable cash flows and return a large chunk of it to shareholders. Here’s a few suitable candidates to get your research started.
Dialing up dividends
First and foremost is telecom giant Vodafone (NASDAQ: VOD), the U.K. based company that holds a $137 billion market value. Vodafone may be an unfamiliar name to investors in the United States, but America accounts for a major component of Vodafone’s business. Vodafone owns a 45% stake in Verizon Wireless and receives hefty financial proceeds from this stake.
As a result, Vodafone has traditionally taken this cash and used it to fund dividends to its own shareholders. Recently, Vodafone announced a share buyback as well. According to Yahoo! Finance, Vodafone’s semi-annual dividend yields more than 5.5%.
Until recently, France Telecom (NYSE: ORAN) had one of the highest dividend yields available on the market. As its stock price crumbled from the devastating effects of higher taxes, stiffer competition and the ongoing economic calamity in Europe, the dividend yield soared into the mid-double digits.
However, as many investors know too well, a dividend yield that looks too good to be true is usually just that. The company’s deteriorating financials finally took their toll on the payout, and France Telecom announced its 2013 dividend will be cut to around $1.04 per share. Even with the reduced payout, at current prices the stock still yields nearly 11% annualized.
That being said, the company’s third-quarter revenue declined only 3% year over year, so it’s beginning to look like France Telecom is getting its business back on track.
PT Telekomunikasi Indonesia (NYSE: TLK) provides telecommunications services in Indonesia and internationally. The company operates in four segments: Personal, Corporate, Home, and Others. At the beginning of the year, it had approximately 171.1 million subscribers.
As has happened with most international stocks, Telekomunikasi Indonesia has suffered recently due to the strengthening U.S. dollar. The stock is down nearly 20% in just a few weeks, but for new investors, this may present an intriguing opportunity.
According to Yahoo Finance, Telekomunikasi’s annual dividend yields 4.5% at recent prices, and the company’s payout was 12% higher than the previous year.
The Foolish bottom line
Spreading your bets to stocks that operate outside the U.S. is a great way to diversify your equity investments. Even though it’s true that globalization has made the world a much more interconnected place, there remains a degree of separation that still insulates one region of the globe from another.
In addition, even though these companies are trying to turn around their businesses and suffer from stagnating revenues, each of them remains committed to paying dividends to shareholders. Their depressed stock prices mean that their outsized yields compare very favorably to their American peers. Investors interested in geographical diversification who are not averse to the heightened level of risk associated with international economies may consider these stocks as suitable alternatives to the U.S.-based telecom stocks.
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Robert Ciura has no position in any stocks mentioned. The Motley Fool recommends France Telecom (ADR), Telkom Indonesia, and Vodafone. The Motley Fool owns shares of France Telecom (ADR). Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!