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An Overlooked Way to Lock In Ridiculously Strong Yields

February 01, 2013 | About:

Dividend investors tend to look at telecom companies for growth and high yields.

That's because telcos such as AT&T (T) and mobile technology companies like Qualcomm (QCOM) have long track records of fast-growing dividend payments.

The problem is this telecom sector in the U.S. is looking expensive right now.


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In the chart above, you can see the SPDR S&P Telecom ETF (XTL), in blue, going back to before the 2012 presidential election. XTL tracks the largest companies in the U.S. telco industry. This is plotted against the S&P 500, in red.

As you can see, XTL is pricy right now relative to the overall market. XTL yields 3.1%, compared with the S&P 500's 2.2%, which is not bad. But a better way to go is the SPDR S&P International Telecom Sector ETF (IST), which tracks large telecom companies all over the world.


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IST has lagged the U.S. telecom market (XTL) and the general stock market over the last few months. That leaves plenty of room for catch up.

Even better, IST yields 5.1%. That's the equivalent of the dividend yield of the S&P 500 plus the current yield on XTL.

I MUCH prefer the overseas telecom sector right now. The U.S. market is already saturated with customers. This leaves little room to growing revenues. Overseas, there are plenty of pockets of high growth left.

You could buy IST and lock in that 5% dividend yield. But you can do even better by buying individual stocks in this sector.

One of my favorites right now is Philippine Long Distance Telephone (PHI), the leading provider of mobile phone and broadband Internet service in the Philippines.

The Philippines is one of the fastest-growing markets in the world right now. In the most recent quarter, its economy expanded at a rate of about 6% (compared with a rate of just 2.7% in the U.S.).

PHI is taking advantage of this growth by signing up more customers for its mobile and broadband services. Over the last five years, the number of PHI cellular subscribers has nearly doubled – from 35.2 million users to 68.6 million users. And the number of broadband subscribers grew from 1 million to 3.2 million over the same period.

And you can't get much better than PHI's monster 6.9% dividend yield.

Another great way to access the high yield and high growth this sector has to offer is to buy shares in PT Telekomunikasi Indonesia (TLK) – the industry leader in the world's fourth most populated country.

With a population of 240 million people and an economy growing at 6.5% as of last year, Indonesia has buckets of potential. TLK is the perfect way to take advantage of it. The company controls over half the entire market for both mobile phones and broadband Internet service.

Although TLK's dividend yield at 3.4% is not as eye-popping as the current yield on PHI, it has a history of surprise special dividends and a huge amount of share appreciation potential.

Get into these high-growth, high-income overseas opportunities. And forget about the puny yields in the U.S. telecom sector.


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Rating: 2.0/5 (4 votes)


Cornelius Chan
Cornelius Chan - 4 years ago    Report SPAM
If one can manage to dollar-cost-average their way into the above mentioned South-east Asian telecom stocks during their respective significant dips over the next few decades - one has a good chance of doing well in the telecom sector of his/her portfolio.

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