The telecommunications industry is currently brimming with opportunities to earn a lofty dividend up front, with ample scope for capital gains down the road.
Here in the United States, mergers have dramatically altered the telecom landscape over the past decade. While there are still something like 1,300 independent telephone companies across America, two giants, AT&T (NYSE: T) and Verizon Communications (NYSE: VZ), easily control more of the market than everyone else combined.
Moreover, because T and VZ operate by far the most extensive wireless networks, the two titans basically represent the future of telecommunications in this country. In the years ahead, the industry’s smaller players, heavily dependent on old-fashioned wireline technology, will be fighting for a shrinking slice of the customer’s dollar. As a result, I consider the smaller telcos too speculative for investors near (or in) retirement.
However there are three foreign telcos that I think are great dividend stocks to buy now.
Beyond our borders, selected foreign telephone companies offer generous yields with greater growth potential. And these well-managed companies should only increase their dividends if the U.S. dollar keeps going down.
Dividend Stock to Buy #1 Telenor (OTC: TELNY)
Why would you want to own a telco in Norway? For one thing, as a hedge against the ruinous financial policies of the U.S. government.
Thanks to prudent management of the country’s oil revenues, Norway has run a budget surplus every year since 1995. The Norwegian currency (krone), in which Telenor (OTC: TELNY) reports its profits (and pays its dividends), is sounder than both the euro and the dollar.
But there’s more to this story. Telenor has expanded far beyond its Norwegian base with mobile and broadband operations in Sweden, Denmark, central and eastern Europe, and five Asian countries. As a result, little-known Telenor is one of Europe’s fastest-growing telecom businesses. Sales will likely pass $19 billion in 2011.
The current yield is 4.2%, and dividends have nearly quadrupled over the past seven years. This year’s dividend amounts to only about half of TELNY’s estimated 2011 profits, so an increase of 10% or so seems probable when the board declares next year’s payout.