Telefonica: This Whopping Dividend Stock Is Worth Considering
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Telefonica (NYSE: TEF) is a well-known name. For good reason too. It has made its presence felt in Europe, Latin America, and Africa, with about 299 million customers in total. It is a world leader in the telecommunications sector. It has more than 80 years of history in Spain since its inception in 1924. So it has reputation and experience among its assets. A very impressive track record, this is a 100% private company with more than a million and a half shareholders.
You can pay $17 for one share and earn a whopping 9.9% dividend yield. The earnings per share is $1.14 and price to earnings ratio stands at 15.04. Top market capitalization of $77.58 billion ranks it 2 of 16 in Foreign Telecom Services.
Its competitor, America Movil S.A.B. de C.V. (NYSE: AMX) has a market cap of $86.76 billion and both of these are way ahead of the average industry figures of $4.36 billion. The quarterly year-on-year revenue growth for Telefonica is -16.6%, something they should tend to, especially since, over at AMX, the figure for the same is 7.5%. America Movil has earnings per share of $1.78 and price to earnings ratio of 12.58 which could be seen as more attractive by value investors. The expected price/earnings to growth for America Movil is 1.28 and for Telefonica it is -11.14 which is quite interesting.
Its profitability picture gives us a profit margin of 6.68% and operating margin of 10.55%. Telefonica’s return on assets is 3.15% showing it is asset-heavy, and its return on equity is 15.11%. With a total debt of $77.43 billion, its debt-equity ratio is a whopping 264.08. Its growth for this year is projected as -42.5%: next year is brighter at 26.7%. The per annum growth for the past 5 years is 49.25%, and for the next 5 years, the annual growth is -.9%. Why is the faith in this company slipping despite its glowing history and awesome dividend yield?
It is a share worth considering, with a high price target of $22, which is not very much to hope for, for someone coming into this position right now who wishes for clean profits. However the dividend is a huge added bonus and for a company to declare that much, it has faith in itself and cares about its shareholders. If you can trust that Telefonica will stand up to what it used to be and do something about its debt and show figures better than the growth projections, then go for it.
In recent news, Telefonica was mentioned as a good share to snap up, especially for those of a contrarian mindset. There has been some Spanish fever happening with a few European nations including Spain and Portugal having had their sovereign debt downgraded, turning their paper valueless or close to junk status. Many investors have been selling which meant these companies have been trading close to their 52-week lows. This is true of Telefonica which showed a 52-week range of $16.53-$27.31. Spain has been its financially troubled home market, and for so many years, Telefonica has lucratively operated business outside of its geographic bounds. It has earned steady profits in the double digits as well. Can it maintain its nice dividend payouts given its heavy debt? That is the million dollar question. This is what puts me on the fence about calling it an outright Buy. Though there is much potential there. You would expect a company that has always done so well to attain to its former glory because success and the feel of profit are in its venation.
Telefonica received some more coverage, this time under the banner of bulls of the day. It rolled out 3G services in Latin America and it also commands a major share of the Brazilian 3G market, along with having finished setting up 3 G networks in 8 Mexican and Venezuelan cities.
This company has been regularly commanding the limelight. Late last year, it was spoken of because of its O2, the pan-European mobile operator that it owns and was expanding in November. Its O2 More mobile marketing service was being extended to Ireland, having been set up in the U.K. Further cause for applause, as that was the first location-based mobile marketing service in Ireland and was set up in collaboration with Placecast. Since its inception, more than 6 million users had been picked up and they opt-in to receive promotions by text messages.
Telefonica was also mentioned close to that time for its high dividend yield. So yes, it is very famous for that.
This company made a bold move late last year, feeling put upon by the uncertain domestic market. It spoke of its intention to sell assets not performing at par. This was with a view to reducing its debt and earning back investor confidence. It is good to know it is conscious of its debt situation and this shows sound business decision-making ability on the part of Telefonica: here’s to hoping they just keep on this trajectory.
The Motley Fool owns shares of Telefonica S.A. (ADR). Vatalyst has no positions in the stocks mentioned above. 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.