With interest rates near 0% and traditional income investments
like savings accounts and certificates of deposits (CDs ) earning
next to nothing, blue chip telecom stocks like
have become wildly popular.
That makes sense. Telecom is a "recession-proof" industry.
Regardless of what's happening with theeconomy , people will still
need cell phones and cable TV. And with both stocks yielding close
to 4.5%, both companies look like a good choice for income
investors in search of high yields.
But there's a problem. As with a lot of American blue chips,
these stocks look expensive right now. AT&T and Verizon
sportP/E ratios of 16 and 20, respectively -- well above the
S&P 500s historical average of 15.
And while a 4.5%dividend yield might seem like a lot, in the
telecom industry, you can find much higher yields... and at a much
For example, I've found a telecom that's currently yielding
8.4%. It enjoys the same competitive advantages as both AT&T
& Verizon, and better yet... it's trading at a P/E ratio of
10.5 -- making it a much better value than AT&T or Verizon.
But you've probably never considered this company. In fact, I
doubt you've ever heard of it.
That's because the company --
Telefonica Brazil (NYSE:
-- isn't based in the United States. But before you dismiss this as
just another "risky foreign stock," hear me out...
As one of two Brazilian fixed-line operators, Telefonica Brazil
is one of the largest players in the business. The company has 11
million fixed-line clients, 3.5 million broadband users and 680,000
In fact, not only does the company dominate the fixed-line and
broadband businesses, but with its recentacquisition of Vivo
Wireless, Telefonica is now also the largest wireless operator in
Due to the company's size, it's unlikely that this stock will
provide blockbuster growth. But even so, after the recent
acquisition, Telefonica Brazil was still able to grow its wireless
revenue 20.5% year-over-year... helping boost the company's revenue
by a modest 3.7% during the same period.
And with a currentnet margin of 15%, the company is solidly
profitable. By comparison, AT&T & Verizon sportnet profit
margins of less than 10%.
Now to be fair, Telefonica Brazil has sold off recently after
the Brazilian government announced its intention to lower certain
fees wireless communication companies can charge. In response to
the threat of heightened regulation, the stock has pulled back
roughly 12% since July. And that decline came on the heels of
another drop in theshares earlier this year. All told, shares of
VIV are now trading 30% below their highs from early 2012.
This big pullback has given investors a great buying
Telefonica Brazil now sports a P/E ratio of 10.5... well below
the industry average of 20.5.
And as I showed you a moment ago, Telefonica Brazil is already
much more profitable than its U.S. counterparts. So even though its
margins may fall as the government puts pressure on the industry to
lower fees, I'm confident Telefonica's margins will remainhead and
shoulders above AT&T's and Verizon's.
And if you're investing in Telefonica in search of big yields,
then you can rest easy. With adividend payout ratio of just 44%,
the company can afford to take a hit to itsbottom line and still
keep up itsdividend payments.
So even with the new regulations, I think Telefonica Brazil --
and its 8.4% dividend -- is safe.
Of course with investing, nothing is 100% certain. Shares of
Telefonica Brazil could always be subject to another pullback, as
we've seen in the past few months.
But it just goes to show that when it comes to income investing,
you don't have to settle for the below average yields offered by
Action to Take -->
hundreds of other foreign blue chips
-- just like Telefonica Brazil -- that are paying much higher
yields than their U.S. counterparts. And better yet, most of them
trade at more attractive valuations.
So if today's low interest rate environment has you starved for
higher yields, then it's time to start looking at foreign
: On average, foreign companies tend to pay higher dividend yields
than their U.S. counterparts. Don't believe me? Consider this...
Out of 227 companies that pay dividend yields over 12%, only 17 of
them are located in the U.S. To see the full list of 17 stocks, or
to learn more about investing in international dividend payers,
follow this link here
-- Paul Tracy
Paul Tracy does not personally hold positions in any securities
mentioned in this article. StreetAuthority LLC owns shares of T,
viv in one or more if its "real money" portfolios.
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