Are These Dividend Companies Financially Strong?
Shweta is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Slower growth companies with high dividend yields were once considered attractive investments because of low returns on government debt and comparatively lower interest rates driven by central banks. But it seems this trend has come to an end. Recently, the U.S. Treasury bond reached its 13-month high. An improvement can be seen in the U.S. economy, as the Federal Reserve continues investing nearly $85 billion a month on bonds and mortgage-based securities. This has caused investors to stray from dividend-paying stocks to treasury bonds. Let’s see if these high-yield stocks will still be able to attract investors.
New tariffs with cost savings
The France T (NYSE: ORAN) Orange brand services 49% of fixed broadband customers (who also purchase mobile services) in Spain. With the launch of the Canguro plan in April, it plans to extend its lower average revenue per user, or ARPU, customer tiers. Its Canguro 45 plan provides 1000 minutes of mobile calling, unlimited SMS, and 1GB of mobile internet at 20Mbps DSL speed. Comparatively, Telephonica's Fusion plan provides 550 minutes of mobile calling, unlimited SMS, and 1GB internet at 10Mbps DSL. Telephonica is selling this plan at 49 euros, making it less attractive than Orange's Canguro.
France T plans to launch 4G services in Spain by July 2013, 10 days prior to its competitor Yoigo's LTE release. Presently, Orange is ranked third in the telecom industry in Spain. By launching its 4G services in six of the biggest cities of Spain, it will strengthen its position in the market. It also plans to enter 9 more cities later this year, and all capital cities by 2015.
In the first quarter of 2013, there were regulatory price cuts, which played a major role in eroding 40% of the declined EBITA. The company reported a 0.6% increase to its labor cost of $18.25 million in the first quarter of 2013. This includes a 1.8% increase in salaries represented by the ''Part-Time for Senior Plan.'' This has helped reduce political pressures on re-hiring of new employees in large numbers. Headcount reduction has been increasing since last year. There will be a further rise in headcount reduction in 2015 with the retirement of senior citizens in the company. Through these prospects, the company was able to reduce costs by $285.49 million in the first quarter, compared to $75.61 million in fourth quarter of 2012. It plans to achieve $782.16 million by the end of 2013.
MBS sales followed with acquisition to enter new market
Annaly Capital Management (NYSE: NLY) recently completed the acquisition of Crexus Investment for about $872 million. The shareholders of Crexus will receive $13.05 per share they hold. Receiving nearly $2 billion a month in the form of principle repayments, funding this deal wasn't difficult for Annaly. The deal is a good one for Annaly as it has added assets worth nearly $1 billion of commercial real-estate MBS. This market is expected to grow by 40%, compared to the previous year.
Annaly sold $17 billion worth of mortgage-based securities, or MBS, in the first quarter of 2013, leading to gains of $182.2 million. This has shrunk its portfolio by 13% to $108.2 billion quarter over quarter. The U.S. Federal Reserve is purchasing around $40 billion MBS per month. As it intends to lower the pressure on interest rates, normalizing and encouraging mortgage markets, in an attempt to sustain recovery in home prices. This activity is expected to continue at least until the year's end. Looking at the historical gains of $80.3 million and $122.2 million in the first and last quarters of 2012, investors can expect continued growth going forward.
Focusing growth, through dividends
VimpelCom (NASDAQ: VIP) is planning to focus on developing a 3G network, along with launching 4G LTE services in seven different regions in Russia. It will raise its capital expenditure to 22% of the revenue for 2013, compared to previous year's 18%. VimpelCom will mainly focus on nine regions of Russia, which equate to 60% of its revenue. This year, the company will increase 22% of 3G base stations of which 80% will have high speed internet by the end of 2013. It will focus on the development of 3G, or HSPA+, this year.
VimpelCom has invested $470 million on its LTE network. Its also testing a 4G network. has also built a 4G network that will be launched in Moscow during the fourth quarter of 2013. Its major focus in 2014 will be its 4G network. VimpelCom, being one of the top three telecom companies in Russia, is sure to benefit.
VimpelCom has a solid track record of dividend payments. Since 2011, the company has paid total dividends of $4.5 billion, which includes the extraordinary dividend paid in May 2013 worth $1.4 billion. VimpelCom aims at paying continuous dividends, of $0.80 per share, despite some inevitable dilution. In fact its dividend per share is expected to increase from $0.80 to $1.59 by the end of 2013. It posted cash deposits of $5.8 billion, of which $2 billion was utilized to pay dividends, in May 2013. With such cash flow, investors can expect timely dividends for years to come.
France T has come up with competitive tariff plans and a cost savings plan. To date, it has a dividend yield of 14.80%, making it a popular investment. With the acquisition of Crexus, Annaly has come to a strong position. And with the added benefit of new exposure to the commercial real estate market, it should be able to produce solid dividends in the future. VimpelCom has planned its Russian expansion well and should have a leg up on the competition. It has a dividend yield of 14.10%, making it an investor friendly company. All 3 businesses are financially strong and should be solid bets going forward.
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Shweta Dubey has no position in any stocks mentioned. The Motley Fool recommends France Telecom (ADR). 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!