Telecommunication Industry :
While Going through the Value line survey about telecommunication industry, it became obvious and more clear which most value investors already know that its a tough industry to be in. I haven't done detailed research into all the companies but these are just the thoughts that came to mind as I went through the pages.
1. Lots of intense competition. At&T remains the leader with Verizon at 2nd, Sprint at 3rd and T -mobil at 4th. There is price war going on right now. But At&T and Verizon has advantage due to the size and economy of scale which becomes obvious when you look at the numbers.
2. Asset intensive businesses with lot of re investments required just t stay competitive.
3. Net profit margins are not great even for larger companies. On average At&T net margins are at 10.5% and 11.7 % for Verizon, most others are lower than these two.
4. ROE is also comparable to S&P, At&T had ROE in past in rage of 12-13 % and now at 14.5% , Verizon traditionally did better with ROE 16-19% but now at 13%. Only other company is J2 Global ( will dig deeper into it) with ROE traditionally > 20% but now has declined to 10% in last 1-2 years.
Now the Good part :
But the management seems to realize the nature of industry too, and they aren't keeping the money for themselves. These companies pay handsome dividends and some of them has strong balance sheets, though on average they carry a lot of debt due to the nature of asset intensive business.
At&T pays 5.4% and Verizon 4.5% dividends and these are likely to be continues, so if you are looking for safe income, these are good bets, but beyond that someone, who is looking to beat the market isn't going to do that, These aren't the typical compounding machines.
They pay anywhere between 50 to 85 % of income as dividends ( payout ratio), and retain the rest for maintenance and growth.
Thoughts on At&T Vs Verizon :
AT&T has actually cut dividend down only once in 2004, and Verizon has never decreased dividend since 1998, ( I only have numbers till 1998)
When Comparing these 2 Giants, Verizon is doing better, higher revenue and earnings growth, and also Vodafone just sold its 45% interest in Verizon. So Verizon actually issued 1.274 billion Shares to Vodafone shareholders for its Verizon share. This represents approx 30% dilution in EPS, still EPS is higher this year thanks to decreasing expenses and increased net margins,
From Morningstar
So, definitely Verizon seems a better bet with also some prospects of future growth at this time, but this decision will require deeper digging into this company, which i may do in future, will put it on my watch list for now :)
While Going through the Value line survey about telecommunication industry, it became obvious and more clear which most value investors already know that its a tough industry to be in. I haven't done detailed research into all the companies but these are just the thoughts that came to mind as I went through the pages.
1. Lots of intense competition. At&T remains the leader with Verizon at 2nd, Sprint at 3rd and T -mobil at 4th. There is price war going on right now. But At&T and Verizon has advantage due to the size and economy of scale which becomes obvious when you look at the numbers.
2. Asset intensive businesses with lot of re investments required just t stay competitive.
3. Net profit margins are not great even for larger companies. On average At&T net margins are at 10.5% and 11.7 % for Verizon, most others are lower than these two.
4. ROE is also comparable to S&P, At&T had ROE in past in rage of 12-13 % and now at 14.5% , Verizon traditionally did better with ROE 16-19% but now at 13%. Only other company is J2 Global ( will dig deeper into it) with ROE traditionally > 20% but now has declined to 10% in last 1-2 years.
Now the Good part :
But the management seems to realize the nature of industry too, and they aren't keeping the money for themselves. These companies pay handsome dividends and some of them has strong balance sheets, though on average they carry a lot of debt due to the nature of asset intensive business.
At&T pays 5.4% and Verizon 4.5% dividends and these are likely to be continues, so if you are looking for safe income, these are good bets, but beyond that someone, who is looking to beat the market isn't going to do that, These aren't the typical compounding machines.
They pay anywhere between 50 to 85 % of income as dividends ( payout ratio), and retain the rest for maintenance and growth.
Thoughts on At&T Vs Verizon :
AT&T has actually cut dividend down only once in 2004, and Verizon has never decreased dividend since 1998, ( I only have numbers till 1998)
When Comparing these 2 Giants, Verizon is doing better, higher revenue and earnings growth, and also Vodafone just sold its 45% interest in Verizon. So Verizon actually issued 1.274 billion Shares to Vodafone shareholders for its Verizon share. This represents approx 30% dilution in EPS, still EPS is higher this year thanks to decreasing expenses and increased net margins,
From Morningstar
 |
| Notice the increase in Operating Margin from 11.4 to 26.5% |
So, definitely Verizon seems a better bet with also some prospects of future growth at this time, but this decision will require deeper digging into this company, which i may do in future, will put it on my watch list for now :)
No comments:
Post a Comment