Nokia (NYSE:NOK) had a terrible October, losing 28% of its value. Now trading at its lowest level since March 2013, NOK stock is tempting speculative investors to take a chance on the telecom hardware and software company.
And while the promise of 5G is an awfully tempting reason to speculate on Nokia stock, I have a hard time understanding why anyone would do so without the rent check its dividend used to provide.
Nokia, without a dividend, is merely another desperate manufacturer selling pixie dust and false hope. Here’s why.
Dividend Was “The” Reason to Own
Nokia paid a 5.6-cent dividend in June and August. If it hadn’t opted to stop paying the third and fourth installments of its 2019 dividend on Oct. 24, it would currently be yielding 6.5% as I write this based on its $3.42 share price.
That’s right: 6.5%.
Now that’s a rent check I believe investors could get behind until the company got its act together. Unfortunately, that’s gone the way of the dodo bird. We won’t know if or when the dividend will resume until one of three things happens:
- The board seeks a dividend authorization at the next annual general meeting, which is scheduled for May 2020 … six months from now.
- The board will review the dividend policy on a quarterly basis. While it’s unlikely to reverse its decision to pause the third and fourth installments in fiscal 2019, it could do so when it announces its fourth-quarter results at the end of January.
- Its net cash position gets back to EUR 2 billion ($2.21 billion). At the end of the third quarter, its net cash position stood at EUR 344 million. It expects to increase its net cash to EUR 1.2 billion in the fourth quarter, 40% shy of its goal to resume the dividend.
From where I sit, the most realistic option appears to be the first choice, which won’t come until the end of May. The Nokia stock price may start to move higher in the spring once investors see the financial progress in Q4 2019 and Q1 2020.
But that won’t come until late April. There are five months between now and then with little or no incentive to hang in there.
5G’s Great … in Theory
In June, I suggested that Nokia’s dividend made it an attractive stock to take a chance on. Of course, we know how this story turned out. NOK stock has lost 31% of its value since my article, most of the damage done with the pausing of the dividend.
“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 wrote June 28.
“I think NOK will land somewhere in the middle, which isn’t half bad since it pays such an attractive dividend.”
It did pay an attractive dividend. Now, long-suffering investors have to hope 5G is real.
InvestorPlace’s Will Healy recently made a speculative case for buying Nokia’s stock, suggesting 5G growth could take it higher.
“Though Nokia’s near-term outlook appears uncertain, 5G adoption and growing profits could still bring about a recovery in NOK stock,” Healy wrote Nov. 13.
Yes, and I could become a billionaire with the snap of my fingers. If only it were that easy.
I’m not trying to be hard on Healy. He’s merely laying out the positive argument for owning Nokia stock. Remember, there are always two sides to every trade.
Investors always have options. If Nokia were the only 5G option available, then maybe I’d be more enthusiastic about its stock. However, we know that’s not the case.
For me, the dividend was the only argument to hang my hat on. Now that’s gone and so is any interest in standing behind the Finnish company.
Bottom Line on NOK Stock
Take a look at the top 10 holdings of the Defiance Next Gen Connectivity ETF (NYSEARCA:FIVG).
At least one of the nine options available (Nokia is the 10th) has got to provide a better risk/reward ratio at this point, both in terms of the upside potential, but also taking into consideration the dividend payment.
In September, I recommended two stocks — Ferrari (NYSE:RACE) and PPG (NYSE:PPG) — that had market caps similar to Nokia. Both are up solidly in the two months since while Nokia’s in the tank.
I’m not patting myself on the back. Instead, I’m pointing out that investors always have options.
I don’t believe Nokia is anywhere near the best 5G option. Not by a long shot.
At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.
