Telefonica Brazil: a dividend paying stock with a soaring share price


While telephone companies are noted for being dividend paying stocks, surges in share prices are not expected. Telefonica Brazil ( VIV , quote ) has a dividend income of 3.85% and over the last month of market action, Telefonica Brazil is up 8.10% .

[caption id="attachment_67778" align="alignright" width="300" caption="Aerial view of Telefónica's global headquarters in Las Tablas, Madrid."] Image courtesy Zayuk: [/caption]

Telefonica Brazil is a wireless communications company based in San Paulo that offers a variety of fixed line and wireless services. It has more than 11 million fixed line customers, 3 million broadband customers and half a million pay television clients. With the World Cup coming to Brazil in 2014 and the Summer Olympics in 2016, infrastructure spending will increase greatly in the country . This will benefit Telefonica Brazil.

In addition to its soaring share price, the stock has other bullish financial indicators. It has a strong profit margin of 15.05%. AT&T ( T , quote ) by contrast, has a profit margin of just 3.44%. Earnings-per-share growth is up by 8.84% this year for Telefonica Brazil. The price-to-earnings ratio is only 8.71.

While the average return-on-equity (ROE) is around 15% for a publicly traded stock, Telefonica Brazil has an ROE of 21.61%. Its debt load is much less burdensome than AT&T's. The payout ratio for its dividend income stream is much smaller than AT&T's, meaning there is more room for dividend growth and stock repurchase plans in the future. This is critical for investors looking for dividend paying stocks.

Now trading around $25.60, the mean analyst target price for Telefonica Brazil over the next year is $29.24. Even with the recent climb in the share price, it is only trading at 11.64% above its 52-week low. Year to date, Telefoncia Brazil is off by 3.21%.

This is a very stable stock. With a beta of 0.56, Telefonica Brazil is almost half as volatile as the stock market as a whole. Research has proven stocks like these to have the highest return over the long term. Telephone company investments are always excellent ways to gain exposure to an emerging market nation in a prudent manner, particularly as dividend paying stocks. The puny short float of just 0.39% shows that there are very few who expect the share price of Telefonica Brazil to fall, even with the recent spike.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Investing , International , Stocks

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