Note to all:Figures and Data used in this analysis can be found in this google spreadsheet here >>
When it comes to high yield investing, investors normally approach a group of equities that gives above average dividend income. These include MLPs, REITs, Utilities and Business Trusts.
One particular Segment of Utilities are the Telecom Stocks. They have high barriers to entry yet require a substantial amount of capital each year to operate. But what you get in return are above average yields.
I got curious when i was investigating Singapore Specific Telecom Stocks, Singtel , M1 Limited and Starhub. I am curious how well they stack up against the international competition.(Folks will be interested in this analysis about Singapore’s 3 telecom stocks >>)
So here i compare them against the very best of the international telecom stocks:
- China Mobile – Biggest Telecom operator in China operating in 31 provinces
- Vodafone – Big Global Telecom Player.
- France Telecom – Big Europe Telecom Player
- AT&T – Big American Telecom Player
- Verizon – Big American Telecom Player
- Chung Hwa – Big Taiwan Telecom Player
- Telefonica – Global Emerging Market Telecom Player
We are going to compare then now.
In terms of margins, whether it is Net Profit Margins or Operating Cashflow Margins, Telcos generally are pretty high. But do note that in telecommunication this is a highly competitive space and you would expect those places with high competition to have lower margins. The american telcos such as AT&T and Verizon are having lower profit margins but in terms of operating cashflow margins they are much aligned with the other telcos. The Asian Telcos look to have better margins overall.
1. China Mobile
2. Chung Hwa
ROE and ROIC
Here is interesting. When we use ROE and ROIC we want to see how hard a lender or an equity investor’s $1 work in each investment. Most of the Telco achieved high ROIC (RED). ROE(BLUE) is lower but which ever matrix you use it seem to indicate that those telcos that diversified overseas and expand such as Singtel and Vodafone actually have lower ROIC and ROE.
Why is Starhub’s ROIC and ROE so high? Primarily because they are highly leverage in that their long term debt out numbers their equity thus providing that leverage effect.
2. Mobile One
3. China Mobile
Dividend Yield, Free Cashflow Yield
Here is what everyone is interested in: The current yields. We have 4 matrix here:
Operating Cashflow Yield – Amount of cashflow generated by the company for that year base on core business
Dividend Payout Yield – Amount of dividends paid out to investors for that year
Capex / Market Cap – Capital Expenditure for that year divided by Market Cap
FCF or Free Cashflow Yield – Operating Cashflow deducting Capital Expenditure
A safe and well operated company will pay a high dividend that is less than free cashflow. So the RED bar should be less than the YELLOW bar. A better company is where the difference between the RED bar and YELLOW bar is greatest.
When we look at our group of telcos, almost all of them pay dividend that is lower than their free cashflow, which is what i like best about telecom stocks as an high yielding income investment.
Still don’t get it why France Telecom and Verizon have such a high free cashflow in excess of 10%!
Top 3 (FCF – Div payout)
1. France Telecom
Top 3 (Div Yield)
1. Starhub (7.91%)
2 France Telecom (6.97%)
3. Verizon (6.41%)
Debt to Equity and Debt to Asset
Here we see how highly leverage each of these companies are a clear link between those companies with the highest yields also tends to be the ones with the highest Debt to Equity.
However, Debt to Asset is stable as all of them have lower than 45% of Assets as debts.
1. China Mobile (no long term debt)
2. Chung Hwa (no long term debt)
3. Mobile One ( no long term debt)
How cheap or expensive are these stocks right now?
Top 3 Lowest PE
3. Mobile One
Top 3 Lowest PTB
2. AT & T
3. Chung Hwa
Top 3 Lowest EV/Operating Cashflow
2. France Telecom
I run a free Singapore Dividend Stock Tracker available for everyone’s perusal. It contains Singapore’s top dividend stocks both blue chip and high yield stock that are great for high yield investing. Do follow my Dividend Stock Tracker which is updated nightly here.
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Monday 1st of August 2011
Also note china mobile is state run company as they hold majority shares ...and we all know how governments run buinesses. Also maybe for political reasons they hire more work force then needed and may in the future be less efficient.
Monday 1st of August 2011
hi Laith, good concerns but essentially people are already saying that China Mobile is losing competitiveness but don't underestimate a major incumbent
Friday 16th of July 2010
Is this the right moment to invest in China Mobile? Please share your view.
Friday 16th of July 2010
China mobile's price have been stable for a long time. there isn't a right or wrong time but generally i think its ok.