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4 Non-U.S. Wireless Carriers with Strong Dividend Yields

Zacks Equity Research
We expect wireless networks to provide the primary impetus to the global telecom industry.

The global telecommunications industry is witnessing rapid technological improvement. Unprecedented growth in high-speed mobile Internet traffic, particularly with respect to wireless data and video, has transformed this industry into the most evolving, inventive and keenly contested space.

Wireless Is Key

Wireless networks hold the key to growth of the overall telecom industry. Wireless network standards are continuously evolving worldwide in order to provide faster speed. Long-Term Evolution (LTE), the most sought after super-fast (4G) wireless communications technology, is gaining rapid momentum. Following significant deployment of 4G LTE networks, LTE-A (Long-Term Evolution Advanced) wireless networks are gradually finding a solid foothold.

Carrier aggregation is the most important part of the LTE-A technology as it allows wireless operators to create large spectrum assets by combining different frequency bands. LTE-A also incorporates several technological advancements such as Coordinated Multi-Point, Self-Optimizing Networks, Small cell enhancements, Enhanced Inter-Cell Interference Coordination and Advanced Multi-Input Multi-Output antenna.

According to a research report published by Ovum for industry association 5G Americas, the connections have reached 2.37 billion globally at the end of first half of 2017. This indicates an improvement of a whopping 59% year over year. Per the report, LTE connections will continue to rise to 2.5 billion in 2017, 3 billion in 2018 and will eventually reach 4.9 billion in 2022. At this rate, 4G LTE is set to outnumber 3G (all forms of 3G technologies) subscribers globally by 2020. By the end of 2021, global LTE market share will cross 53%.

Upcoming 5G Wireless Network

Fifth-generation (5G) superfast wireless networks will provide the primary impetus to the telecom industry. In September 2017, Moody's Investors Service stated in a report that the evolution towards 5G wireless networks will result in higher capital spending for U.S. wireless carriers. Per a report by research firm iGR, U.S. telecom operators will spend around $104 billion during 2015--2025 to upgrade their existing 4G networks to the upcoming 5G standards and thereafter, execute full installation of 5G wireless services.

We expect wireless networks to provide the primary impetus to the telecom industry. In this regard, Internet of Things (IoT) has the potential to emerge the numero uno factor for future growth in the space. According to a report by research firm International Data Corporation (IDC), worldwide spending on IoT will grow at 19.2% compound annual growth rate to nearly $1.7 trillion in 2020 from $698.6 billion in 2015.

Asia-Pacific at the Forefront

While the United States is expected to maintain the momentum in LTE network growth over the near term, the major impetus is likely to come from the emerging markets of Asia-Pacific. Countries, such as China, Japan, Taiwan and South Korea are significantly expanding their nationwide LTE network either through Time Division Duplex (TDD) or in Frequency Division Duplex (FDD) mode.

In Asia, several governments are driving smart cities and IoT projects by providing financial aid and instituting preferential policies. These governments are providing structural subsidies to boost next-generation high-speed broadband. FTTH construction in various Asia-Pacific countries is accelerating, which has resulted in significant increases in users covered and a continuously improving fixed broadband and fixed-mobile broadband.

The LTE network has the highest penetration rate of 90.5% in the North American region. Both Western Europe region and Oceania, Eastern and South-eastern Asia region have a LTE penetration rate of 54%. In the Latin American and Caribbean region, LTE market share has more than doubled year-over-year to 23%. This figure is projected to grow 28% by the end of this year and further to 59% in 2021.

Why Dividend Matters?

One of the easiest ways for any company to raise its shareholders’ wealth is to hike dividend rate. Typically, well established, profitable companies pay dividends. However, companies that do not pay dividends are not necessarily without profits. Investors seeking income-producing (dividends) stocks are well served by growth and income-oriented companies, i.e., companies with stable earnings growth that pay a solid dividend. (Read More: The #1 Trading Strategy for Today's Market)

As the global economy is growing steadily, supported by strong data of various macro-indicators, many of these large companies are likely to generate massive cash but because of their size, may not have the growth opportunities they once had. For that reason high dividend-yielding companies will be attractive for investors.

Our Pick

At this stage, we believe investors should choose stocks which promise strong dividend yield and carry a favorable Zacks Rank to cash in on the future growth that 4G LTE and upcoming 5G network offers. We present four such stocks here.

PLDT Inc. PHI: Based in Makati City, the Philippines, PLDT offers telecommunications services in the Philippines. Its operating segment comprises Wireless, Fixed Line and Others. PLDT holds a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here. The company has long-term (three-five years) earnings per share (EPS) growth estimate of 15.03% and a dividend yield of 4.10%. (Looking for the Best Stocks for 2018? Be among the first to see our Top Ten Stocks for 2018 portfolio here.)

SK Telecom Co. Ltd. SKM: Based in Seoul, South Korea, SK Telecom is the largest wireless service provider in South Korea. The company is the first in the world to offer commercial CDMA digital mobile service. SK Telecom has long-term (three-five years) EPS growth estimate of 7.74% and a dividend yield of 2.56%. The company currently holds a Zacks Rank #2 (Buy).

Vodafone Group Plc VOD: Based in Newbury, the UK, Vodafone is the world's largest mobile communications firm. Its primary operation is in digital and analog cellular telephone networks. Vodafone has long-term (three-five years) EPS growth estimate of 10.19% and a dividend yield of 3.70%. The company currently holds a Zacks Rank #2.

Turkcell Iletisim Hizmetleri A.S. TKC: Based in Istanbul, Turkey, Turkcell is the leading provider of mobile communications services in Turkey. Turkcell has a dividend yield of 5.49%. The company holds a Zacks Rank #2.

Bottom Line

Telecommunications is one of the few industries to have seen rapid technological improvement even during the recession. Owing to the significance of this service as an infrastructure product, we expect the overall economic dynamics to shift in favor of the industry. At this stage, we believe that these four stocks with a favorable Zacks Rank and high dividend yield are poised to capitalize on the growing opportunities.

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PLDT Inc. (PHI) : Free Stock Analysis Report
 
SK Telecom Co., Ltd. (SKM) : Free Stock Analysis Report
 
Vodafone Group PLC (VOD) : Free Stock Analysis Report
 
Turkcell Iletisim Hizmetleri AS (TKC) : Free Stock Analysis Report
 
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