What Telecom Dividend Will Die Next?

What Telecom Dividend Will Die Next?

March 14, 2016



Senior tech analyst Eric Bleeker discusses future prospects for telecom dividends with Chief Technology Officer Jeremy Phillips. Telefonica, the Spanish telecom giant, scrapped its dividend for this year and hopes for it to resume half its payout at the end of 2013. The key reason Telefonica cut its dividend is that it is loaded up with $84 billion in total debt. The debt is a very complicated mix of maturities but includes commercial paper and is generally maturing soon. The plan allows the company to save $12 billion, so its not surprising considering the situation in Europe.

The question now is which telecom dividend is next? France Telecom is seeing worse year-over-year revenue declines than Telefonica, but has said it’ll retain its beefy dividend — which yields more than 10% – through 2012, but will reduce it in 2013. The big difference between Telefonica and France Telecom? Telefonica has that $84 billion in debt, while France Telecom has more cash than total debt. That’s a huge asset right now and I think considering the conditions it’s a much better buy.

Turning to the US there’s kind of an interesting wrinkle here. Everyone is focused on whether rural landline focused companies like Frontier will continue cutting dividends, a move Bleeker says is likely. However, the interesting thing is that dividend investors have cycled to US wireless companies sending Verizon and AT&T soaring this year, presumably based on the strength of their dividends. While they are much stronger than European countries or rural landline players like Frontier, low-end price competition could still hurt the two US wireless giants. sfr

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