The Most Promising Dividends in Foreign Wireless

Dividend payers deserve a berth in any long-term stock portfolio. But seemingly attractive dividend yields are not always as fetching as they may appear. Let's see which companies in the foreign wireless industry offer the most promising dividends.

Yields and growth rates and payout ratios, oh my!
Before we get to those companies, though, you should understand just why you'd want to own dividend payers. These stocks can contribute a huge chunk of growth to your portfolio in good times, and bolster it during market downturns.

As my colleague Matt Koppenheffer has noted: "Between 2000 and 2009, the average dividend-adjusted return on stocks with market caps above $5 billion and a trailing yield of 2.5% or better was a whopping 114%. Compare that to a 19% drop for the S&P 500."

When hunting for promising dividend payers, unsophisticated investors will often just look for the highest yields they can find. While these stocks will indeed pay out the most, the yield figures apply only for the current year. Extremely steep dividend yields can be precarious, and even solid ones are vulnerable to dividend cuts.

When evaluating a company's attractiveness in terms of its dividend, it's important to examine at least three factors:

  • The current yield
  • The dividend growth
  • The payout ratio

If a company has a middling dividend yield but a history of increasing its payment substantially from year to year, it deserves extra consideration. A $3 dividend can become $7.80 in 10 years, if it grows at 10% annually. (It will top $20 after 20 years.) Thus, a 3% yield today may be more attractive than a 4% one, if the 3% company is rapidly increasing that dividend.

Next, consider the company's payout ratio, which reflects what percentage of income the company is spending on its dividend. In general, the lower the number, the better. A low payout ratio means there's plenty of room for generous dividend increases. It also means that much of the company's income remains in its hands, giving it a lot of flexibility. That money can fund the business's expansion, pay off debt, buy back shares, or even buy other companies. A steep payout ratio reflects little flexibility for the company, less room for dividend growth, and a stronger chance that if the company falls on hard times, it will have to reduce its dividend.

Peering into foreign wireless
Dividend investors typically focus first on yield. Among foreign wireless companies, Cellcom Israel (NYSE: CEL  ) and (also Israel-based) Partner Communications (Nasdaq: PTNR  ) offer the respective heady yields of 10.2% and 8.9%. Such companies aren't always your best bets, though, if their dividend growth is meager or their payout ratios too steep. Cellcom and Partner don't have payout ratios to worry about, though, and dividends seem to be increasing, especially with Partner Communications. Both companies' yields are high in part because of slumping stock prices, as they've experienced revenue growth slowdowns, increased customer turnover, and pressure from competitors.

If you focus on the dividend growth rate first, you'll end up with Partner Communications and China Mobile, with five-year average annual dividend growth rates of 28.3% and 24.2%, respectively. When growth rates are so steep, they can be hard to maintain for long. These have reasonable payout ratios, though, making that far from an immediate concern.

Some companies, such as Israel-based Ceragon Networks (Nasdaq: CRNT  ) , don't pay dividends at all. That's because smaller or fast-growing companies often prefer to plow any excess cash into further growth rather than pay it out to shareholders. Ceragon has been growing rapidly, averaging 24% annual revenue growth over the past five years and signing contracts for new orders.

Just right
As I see it, China Mobile and Partner Communications offer the best combination of dividend traits, sporting solid income now and a good chance of strong dividend growth in the future. China Mobile's current yield, at 3.6%, is much lower than Partner's 8.9%, but it has the advantage of operating within a huge and growing population.

With a yield of 6.3%, Russia's Mobile TeleSystems OJSC (NYSE: MBT  ) is also worth a look, as is the U.K.'s Vodafone (Nasdaq: VOD  ) , yielding 3.5%. But if you're risk averse, perhaps you should bypass Mobile TeleSystems. One reason its yield is high is because its stock is being somewhat reined in by concerns over corruption in Russia. Vodafone is appealing partly for its 45% stake in Verizon Wireless, though its stock is also being held back some due to concerns over Europe's economic woes.

Of course, as with all stocks, you'll want to look into more than just a company's dividend situation before making a purchase decision. Still, these stocks' compelling dividends make them great places to start your search, particularly if you're excited by the prospects for this industry.

Do your portfolio a favor. Don't ignore the growth you can gain from powerful dividend payers.

Looking for some All-Star dividend-paying stocks? Look no further.

Longtime Fool contributor Selena Maranjian holds no position in any company mentioned. Click here to see her holdings and a short bio. You can follow Selena on Twitter @SelenaMaranjian. The Motley Fool owns shares of China Mobile. Motley Fool newsletter services have recommended buying shares of Ceragon Networks, Vodafone Group, China Mobile, and Cellcom Israel. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (4) | Recommend This Article (4)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On February 02, 2012, at 11:20 AM, DividendsBoom wrote:

    Yeah...vodafone's yield is more like 6ish, even without the special payment this year.

  • Report this Comment On February 02, 2012, at 6:32 PM, Scoach wrote:

    Interesting is Munich Re (DE0008430026) - pays 6,5 % dividend. Trade at NYSE.

  • Report this Comment On February 02, 2012, at 7:07 PM, DBLBLU wrote:

    One things that you need to keep in mind when looking at dividend yield is the withholding taxes.

    Both CEL and CRNT have to withhold 20% at the source as a government tax.

    As a Canadian with US dividend-issuing stocks, I frequently see 15% disappear. This Canadian's gift to Uncle Sam.

  • Report this Comment On February 04, 2012, at 6:44 PM, zlot wrote:

    Although I have a bunch of it, I ain't too crazy about PTNR, either, for the additional reasons of foreign tax and an additional fee I am charged with the receipt of a dividend. Other analysts, however seem to be very bullish on it otherwise, and I'm in the hole with it so that's why I'm still holding.

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