If there’s a more boring large-cap stock than Nokia (NYSE:NOK), I’d love to know which one it is. On the surface, NOK stock does not seem very appealing, since it’s been in the doldrums for at least the past 36 months.
It’s hard to believe, but in 2000, NOK stock traded around $60 per share. As recently as 2007, it sold for nearly $40. Now around $5, Nokia stock doesn’t excite investors much.
Nonetheless, I’ve got two reasons why dividend investors ought to give NOK the time of day.
A Great Dividend
NOK stock is currently yielding nearly 6%.
Of the 86 stocks listed on a U.S. stock exchange with a market cap of $2 billion or more and a stock price less than $10, Nokia’s dividend yield is the 19th highest, according to Finviz.com. Of stocks with a market cap greater than $10 billion and a share price that’s less than $10, it’s the sixth highest out of 26 stocks.
The market cap of Nokia stock is $27.7 billion. It finished the first quarter with $7.6 billion of cash and short-term investments. That means it’s currently trading at 3.6 times cash. By comparison, Microsoft (NASDAQ:MSFT) and Apple (NASDAQ:MSFT) are trading at 7.8 and 11.5 times cash, respectively.
I would never confuse NOK with Apple and Microsoft. However, Nokia decided this quarter to pay a quarterly dividend of 0.05 euros per share and is authorized to pay out up to an additional 0.15 euros through February 2020. In U.S. currency, that’s 23 cents per share for the entire fiscal year.
NOK is not going to be a home run for investors. But it has net cash of $2.6 billion and will only pay out up to $1.3 billion of dividends in its current fiscal year. As a result, there’s zero likelihood that investors won’t receive their dividends, making NOK quite appealing to income investors.
5G to the Rescue?
InvestorPlace columnist Luke Lango recently discussed the pros and cons of buying Nokia stock. A lot of his thoughts focused on the move to 5G in the U.S. and around the world.
“Nokia is at the heart of the 5G pivot. The company makes and sells the end-to-end networking solutions, which are essentially the building blocks for 5G coverage. NOK has also won over 40 5G contracts, which is more than any other components provider. Essentially, these deals make them the global end-to-end 5G-solutions leader,” Luke stated in an article published on June 19.
If 5G becomes widespread, NOK is ideally positioned to take advantage of that trend. As a result, in such a scenario, its profits and dividend yield will rise, while NOK stock will climb to double digits.
That’s a big “if,” but given NOK once ruled the wireless industry, it’s not impossible to imagine it making a comeback.
The Bottom Line on Nokia Stock
However, as Lango warned, Nokia has had an uncanny ability to report horrible quarterly earnings, leaving most investors highly suspicious of its outlook.
Frankly, investors would have to be crazy to buy Nokia stock based on the hope that 5G will boost its stock. That could happen. But NOK also could fall flat on its face and miss the opportunity entirely.
I think NOK will land somewhere in the middle, which isn’t half bad, since it pays such an attractive dividend.
At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.