Earlier today, Motley Fool Income Investor pick France Telecom
Now, while these results are broadly in line with France Telecom's preannouncement on Feb. 1 and don't come as much of a surprise, I am not particularly happy about the company's guidance for 2007, especially in terms of its free cash flow and dividend payout plans. According to management, France Telecom hopes to generate free cash flow of roughly $8.9 billion in fiscal 2007, down from the $9.3 billion recorded in 2006. That's a big assumption, given the continued erosion in the company's fixed-line business and the unexpectedly weaker growth in the wireless division. Furthermore, the company has stated that its dividend payout ratio will remain the same as in 2006, at 44% of cash-flow ... meaning that investors will be seeing no dividend growth in 2007.
Now, I realize that France Telecom increased its dividend payout by 20% in 2006 -- and we all are grateful for the company's munificence -- but when dividend growth appears to be stagnating (and I won't even contemplate economic conditions that could force a cut in the payout ratio), it does make us more cautious. Simply put, while I don't see any reason for investors to hang up on shares of France Telecom, I also don't see any compelling reason to dial up a position in the stock.
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Fool contributor Will Frankenhoff is enjoying his time writing for The Fool more than reading The Financial Times, rooting for the Jints, or taking a nap. He welcomes your feedback. He does not own shares in any of the companies mentioned above. The Fool has a disclosure policy.