Telecom stocks have pulled back with the overall market. But with the continued global growth of smartphones, increased data usage, new trends in digital media and upcoming advances such as 5G, several contributors to MoneyShow.com continue to see long-term opportunities in the telecom space. Here are eight favorites from leading newsletter advisors.
is the largest wireless carrier in the country. Its wireless segment contributes approximately three-quarters of its aggregate revenue and covers approximately 298 million people.
In late October, Verizon reported financial results for the third-quarter of fiscal 2018. In the quarter, revenue grew 2.8% to $32.6 billion, which beat analyst estimates by $110 million. Earnings-per-share of $1.22 beat estimates by $0.03 and grew by more than 24% over the same period a year ago.
Verizon has grown its earnings-per-share at a rate of approximately 5% per year over the last decade. We believe that this rate of growth is sustainable for Verizon over full economic cycles. Future growth will be driven by the continued strength of its wireless segment as well as new initiatives such as the introduction of 5G networking.
Verizon scores very well on all of our important measures of dividend safety. The company is on pace for a payout ratio of just 54% in fiscal 2018. Moreover, the company has increased its dividend for 11 consecutive years and is likely to continue to pay rising dividends for the foreseeable future.
Lastly, Verizon consistently operates with an interest coverage ratio exceeding 5x and is on pace for approximately 5.5x of interest coverage in fiscal 2018. The company’s combination of safety and yield makes it compelling for yield-hungry investors with low risk tolerances.
Verizon is likely to generate earnings-per-share of approximately $4.35 in fiscal 2018. Using this estimate, the company is trading at a price-to-earnings ratio of 13.4 today.
Verizon traded at an average price-to-earnings ratio of 14 over the last decade. If the company’s price-to-earnings ratio can expand to its 10-year average over the next 5 years, this will increase Verizon’s total returns by about 0.9% per year.
Through a combination of dividend payments (4.1%), earnings growth (5%), and valuation expansion, Verizon appears priced to deliver total returns of approximately 10% per year moving forward.
Over the last year,
has been involved in a variety of takeover battles — for media conglomerate
Broadcasting. Comcast butted heads with the Walt Disney Company on both deals.
The takeover fight resulted in a split decision — Disney walked away with most Fox assets, while Comcast paid approximately $40 billion for Sky. Comcast has been criticized in some corners for paying up for a legacy pay-TV business that seems vulnerable to the same cord-cutting issues impacting the U.S. cable business.
However, Comcast has shown an ability to maximize big deals — the transformative mergers with
Broadband in 2002 and NBCUniversal in 2011 have been hugely successful. The NBCUniversal business is putting on a strong show, with NBC finishing No. 1 in total viewers for the first time in 16 years.
Third-quarter results provided a lot of good news for shareholders; adjusted per-share earnings rose more than 27% to $0.65, beating the consensus estimate by $0.04. Revenue increased 5% to $22.1 billion, versus an estimate of $21.8 billion. The firm generated $3.1 billion in operating cash flow in the quarter, returning $2.1 billion to shareholders in dividends and share buybacks.
The addition of Sky expands Comcast’s customer relationships to more than 50 million, nearly doubles its broadband footprint, and triples the number of customer households it can reach, now nearly 200 million. Both firms bring treasure troves of content to the merger, from Comcast’s television and film assets to Sky’s original content and coveted sports programming. Given the cost of Sky, Wall Street may have limited patience waiting for the payoff, but few can deny the size of the opportunity. Trading at less than 14 times 2019 earnings estimate, Comcast offers an appealing value.
Inc. is Canada’s largest communications company, providing a comprehensive suite of broadband, mobile, landline and cable communication services to residential and business customers through Bell Canada and Bell Aliant.
is company’s multimedia arm, with assets in television, radio and digital media. Television assets include the CTV television network and many of the country’s most-watched specialty channels.
BCE Inc. reported third-quarter financial results that were in line with analysts’ estimates, while new wireless additions beat forecasts. Operating revenue was up by 3.2% year-over-year, to just under $5.9 billion. Adjusted net earnings were $861 million ($0.96 per share) compared to $824 million ($0.91 per share) the year before.
Of special interest was the record growth of 178,000 in wireless net additions. Wireless has become the lifeblood of telecommunications companies and this type of growth for a mature firm like BCE Inc. is impressive. BCE also added 266,000 broadband wireless, internet and IPTV customers, up 41.5%. (IPTV is the delivery of TV content over the internet as opposed to cable, satellite, etc.)
Almost unnoticed, BCE Inc. has also been improving the bottom line by downsizing its management team; it completed a net reduction in its management workforce of 4%, or approximately 700 positions. The current quarterly dividend yields 5.3%. I expect a dividend increase early in 2019. The stock has rebounded off its low. I rate the shares a Buy.
Telus Corp. is one of Canada’s fastest-growing telecom companies, with $13.8 billion of annual revenue and 13.1 million subscriber connections. The company provides a wide range of communications products and services, including wireless, data, internet protocol (IP), voice, television, entertainment and video, and is Canada’s largest healthcare IT provider.
Telus reported very strong third-quarter results, which helped to boost the stock. Operating revenue was $3.8 billion, up almost 11% from $3.4 billion in the same period of 2017. Adjusted net income was $445 million ($0.74 per share) compared to $417 million ($0.70 a share) in the same period last year. Free cash flow was ahead 41% to $303 million.
The company reported 145,000 net wireless additions — not as many as BCE Inc. but impressive given the fact that Telus has a smaller customer base. Telus also increased wireline customers by 42,000 at a time when some competitors are reporting losses in that area.
he company announced a 3.8% increase in the quarterly dividend to $0.545 per share ($2.18 per year). It’s the second increase announced this year and the sixteenth since 2011. The company has a target of annual increases in the 7%-10% range through 2019. The stock yields 4.6% at the new rate. Buy for income and long-term growth.
The key to successful investing for income using blue chips is to pick issues with long track records of paying their dividends no matter what the economy is doing – and for bouncing back in price after market shocks run their courses.
One company that fits the bill for both income and long-term appreciation is AT&T. The company increased its dividend each year for 33 years, an enviable record. Moreover, the dividend yield is currently an attractive 6.11% – which is twice what Uncle Sam pays on his 10-year Treasury bonds.
The company is also an international provider of cellular, internet, legacy (landline) voice and data services. To better serve its customers, the company has over 16,000 retail stores and kiosks. AT&T also offers the prospect of long-term appreciation. The company is no longer the lazy monopoly it was many years ago when government protections made it unnecessary to compete in a free market economy.
Today’s AT&T provides communication and digital entertainment services to over 40 million subscribers. The company offers digital TV services through the DIRECTV and SKY brands in North and South America.
AT&T looks particularly attractive now. As can be seen in the company’s stock chart, its price is down from its recent high due to weak pay-TV results. However, AT&T added many more wireless subscribers than expected — and the stock appears to be rebounding from the body slam that the market suffered in October. I think AT&T will be a top long-term provider of both income and capital gains.
had been holding up well in the face of U.S./China trade tensions. But shares finally succumbed to selling in a reaction to lower wireless tariffs. And Nippon Telegraph & Telephone took a whack when its wireless unit NTT DoCoMo announced a major price-cutting move.
China trade worries are the primary reason some have given up on China Mobile. The fraying of trade relations between the world’s two largest economies is worrisome. But China today is much bigger and stronger than it was even a decade ago. And China Mobile is a prime beneficiary of the country’s effort to gain self-sufficiency in key technologies like 5G.
The company’s wireless customer additions for September were nearly twice those of its nearest rival, which is barely one-third China Mobile’s size. Total user base is now 916 billion wireless and 144 billion wireline broadband. It’s still a low risk way to play the growth of the world’s biggest telecom market.
Nippon Telegraph’s fiscal half-year earnings (ending September 30) and guidance call apparently succeeded in calming at least some of the fears raised during the earnings call of its DoCoMo unit. Management stated and backed up a target to raise earnings 50 percent by 2023, a pretty clear indication it doesn’t consider DoCoMo’s move as ultimately destroying wealth.
Judging from the reaction of more than a few analysts on the call, management has its work cut out proving its case to investors. But now trading at just 9.9 times expected 12 months earnings, there’s no froth in Nippon Telegraph’s stock. And if the company does meet its numbers, that means a lot of upside.
Our tendency to stare at our phones all day may not be good for conversation but it’s great for
, which acts like a toll bridge for cell phone traffic. The cell-tower operator is a landlord for mobile phone traffic, collecting rents via its 170,000 towers — and this highway is only getting busier.
Back in the day, mobile phones were only used for actual phone calls and they didn’t take up much network bandwidth. Fast-forward to today, and you might be reading this on your phone! That consumes more network juice than a simple call. And if you watch any videos from your phone, and you’re not connected to WiFi, you are consuming plenty of bandwidth.
It’s a good time to be a cell phone landlord no matter which country you pick. In developed places like the U.S., we’re consuming more media from our phones, which asks more and more from the cell towers. And in developing countries like India, demand is increasing thanks to a ballooning middle class.
International opportunities can actually be more lucrative for American Tower because these countries are not as hard-wired as the U.S. They are skipping computers and going straight to smartphones. This is great for the company, which has 76% of its towers outside of America’s borders including fast-growing India.
Thanks to its existing towers, management has a true cash cow on its hands. It doesn’t have to spend as much to grow these days as it used to. And because capital expenditures are 50% lower today than they were 10 years ago, rent checks result in higher and higher free cash flow. As a result, management hikes the dividend every single quarter.
An underpriced stock today makes American Tower a great candidate for us. But its outlook for tomorrow — regardless of what happens in the stock market or economy-at-large — gives us the type of recession-proof growth investment we’re looking for.