The Best Dividend in Telecom Isn’t AT&T

The number one dividend stock isn't in the U.S., and offers a more than 7% dividend yield.

Jul 16, 2014 at 3:30PM

One of the highly anticipated mergers from earlier this year never came to fruition, but the company that was left out in the cold could still be a great investment. AT&T (NYSE:T) ended its pursuit of European telecom Vodafone (NASDAQ:VOD), ultimately deciding to buy DirecTV.

Shares of Vodafone had a nice run last year after the company sold its stake in Verizon Wireless to Verizon Communications (NYSE:VZ). Investors continued bidding up shares on the expectation that AT&T would buy the company. But shares of Vodafone are now down 13%, while Verizon and AT&T are up 4% and 5%, respectively.

One billionaire still loves Vodafone
Billionaire John Paulson made nearly $15 billion shorting subprime loans during the financial crisis. He specializes in merger arbitrage, focusing on takeovers. Lately, his merger arbitrage focus has been in the telecom sector, where mergers and acquisitions have picked up.

Among Paulson's notable wins have been Sprint Corporation after a bidding war erupted between Softbank and Dish Network. John Paulson also owned shares of MetroPCS before it was bought by T-Mobile. Paulson's other winner was Leap Wireless after AT&T bought the company. The fact that AT&T didn't buy Vodafone isn't discouraging to Paulson, though. He remains Vodafone's largest shareholder, with a $1 billion stake in the company. In digging deeper, it's easy to see why Paulson still loves Vodafone.

Vodafone going forward
After selling its stake in Verizon Wireless, Vodafone has been focused on rewarding its shareholders. Its 7.6% dividend yield is well above its major peers. Vodafone remains a global telecom giant. The company has operations in Europe, Africa, the Middle East, and in Asia. Many analysts now expect the company to use its strong balance sheet to go on an acquisition binge. The company will turn from prey to predator.

The potential to break into emerging markets is a big positive for Vodafone. It's doing this with partner agreements, which includes its partnership with Polkomtel to boost its Eastern Europe exposure. This allows Vodafone to expand into new faster-growing markets with little investment.

The U.S. leaders
AT&T's move to buy up DirecTV for nearly $50 billion is a big shift from the potential Vodafone acquisition, where AT&T will now have a big presence in the pay-TV market versus the European telecom market. The move will add 20 million subscribers to its video customer base, versus the current 5.7 million pay-TV customers that AT&T has. Assuming the deal goes through, AT&T will be the second-largest wireless company, and second largest pay-TV company.

Meanwhile, Verizon got a greater stronghold on the U.S. wireless market with its February acquisition of the remaining 45% stake in Verizon Wireless, which was previously owned by Vodafone. The $130-billion acquisition was one of the largest in telecom industry history.

How shares stack up
Vodafone trades at the highest P/E ratio of the three, but its P/S and P/B ratios are the lowest. Meanwhile, Vodafone has the lowest debt-to-equity ratio, and more than 25% of its market cap is covered by cash on the balance sheet. Verizon's dividend yield comes in the lowest of the three, at 4.3%, with AT&T at 5.1%. Vodafone is an impressive 7.6%.

Bottom line
The global rise in wireless is a big positive for the major telecom companies. While the likes of AT&T and Verizon are major players in the somewhat saturated U.S. market, Vodafone is looking to grow its presence in the faster-growing European markets. For investors looking for a high-yield investment in the telecom space, Vodafone is worth a closer look.

Top dividend stocks for the next decade
The smartest investors know that dividend stocks simply crush their non-dividend paying counterparts over the long term. That's beyond dispute. They also know that a well-constructed dividend portfolio creates wealth steadily, while still allowing you to sleep like a baby. Knowing how valuable such a portfolio might be, our top analysts put together a report on a group of high-yielding stocks that should be in any income investor's portfolio. To see our free report on these stocks, just click here now.

Marshall Hargrave has no position in any stocks mentioned. The Motley Fool recommends Vodafone. 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.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.


Compare Brokers