Prior to the release of the Lord of the Rings trilogy, most Americans had probably never seen even a glimpse of New Zealand or given it a second thought. After all, if there were ever a country located "in the middle of nowhere" it's New Zealand.
But I don't really care about that. What I do care about is that Motley Fool Income Investor recommendation Telecom New Zealand (NYSE:NZT) has treated its shareholders well over the years and paid out quite a bit in dividends. While the stock got clobbered from 2000 to 2002, it's recovered well since then and that stock swoon didn't stop the company from paying dividends.
Judging by the company's third quarter (ended March), Telecom New Zealand continues to see the same sorts of trends in its business that most major telecoms are seeing around the world. Namely, traditional calling services are becoming increasingly less profitable, but mobile, broadband, and data services are growing to fill the gap.
Total revenue grew more than 3% for the quarter, and while EBITDA declined by 3%, EBIT was basically flat and earnings per share grew more than 4% from the year-ago period. Although the company's expenses grew at a considerable rate vs. revenue, this was the result of adding personnel, and it should pay off over time in terms of better service and happier customers.
Looking ahead, investors should continue to expect healthy dividend checks. The company is committed to paying out more than three-quarters of its earnings as dividends, and the business looks stable. What's more, if the company can make progress on containing expense growth, those benefits should certainly flow through to the bottom line.
Though there are some risks present, I'm not terribly concerned about them right now. True, the company is accelerating its capital expenditures, but that is true for most telecoms and it's a critical aspect of staying competitive ("it takes money to make money"). It's also true that the telecom business continues to change and evolve, and competitive threats from the likes of Vodafone (NYSE:VOD), Telstra (NYSE:TLS), and SingTel aren't going to vanish.
To me, Telecom New Zealand remains an interesting income-based play. While I wouldn't want to raise readers' expectations about the company's growth prospects, Oceania continues to grow, and the company could look to expand to additional markets in the region at some point in the future. With strong margins, a good ROE, reasonable debt, and a high payout, I think Telecom New Zealand will continue to pay off for those who own it.
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Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).
