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7 Telecom Stock Picks to Buy and Hold

Wayne Duggan

Telecom stocks are a good source of dividends.

Telecommunication stocks may not typically be the most high-flying stocks for investors to buy to get rich quick. However, telecom stocks can offer stability and reliability in an unpredictable market. Trade war headlines have consistently spooked the market in 2019, and the International Monetary Fund recently cut its full-year global economic growth forecast to just 3%, its third cut of the year. Many telecoms have consistent, predictable earnings and pay high dividend yields, which are particularly appealing in a climate of low interest rates. Here are seven telecom stocks to buy now, according to Morningstar.

China Mobile (ticker: CHL)

China Mobile is the world's largest mobile service provider, with more than 800 million customers in China alone. China Mobile shares have taken nearly a 30% hit in the past three years, in large part due to impacts of the trade war. However, analyst Dan Baker says China Mobile's cash flow has created one of the strongest balance sheets of any company in the world. The stock pays a 4.4% dividend with a payout ratio of around 50%. Morningstar has a "buy" rating and $57 fair value estimate for CHL stock.

China Unicom (CHU)

China Unicom is China's second-largest telecom services company, with more than 400 million customers. The trade war and unrest in Hong Kong have dropped China Unicom's stock more than 15% in the past six months, but Baker says the dip is a buying opportunity for long-term investors. Baker says China Unicom's revenues in the first half of 2019 were impressive considering the government mandated the removal of roaming fees last year. Baker is projecting 14% annual operating earnings growth over the next five years. Morningstar has a "buy" rating and $16.50 price target for CHU stock.

CenturyLink (CTL)

CenturyLink is one of the largest U.S. telecom services companies. The stock is down more than 55% in the past three years, but analyst Matthew Dolgin says it has gotten way too cheap. Dolgin says the company has a manageable debt load and it is unlikely to cut its 8% dividend again in the near future. Revenue declines have accelerated in recent quarters, but Dolgin says CenturyLink's focus shift from the consumer business to enterprise customers should create more growth opportunities. Morningstar has a "buy" rating and $18 fair value estimate for CTL stock.

Orange (ORAN)

Orange is the telephone and wireless services leader in France, with more than 9 million customers in France and Spain combined. Despite consistently lackluster revenue growth, Orange shares have been relatively stable in recent years, allowing investors to reap the full benefit of the stock's 4.7% dividend. Dolgin says competition will make revenue growth hard to come by over the next five years, but Orange is best-positioned in France and should get a boost from operations in Africa in the long term. Morningstar has a "buy" rating and $21 fair value estimate for ORAN stock.

SK Telecom (SKM)

SK Telecom is Korea's leading telecom service provider and holds nearly 50% market share. Baker says increasing costs related to 5G network investments ate into operating profits in the second quarter, but 6.8% revenue growth was encouraging. The company's investment in SK Hynix was well-timed and could be a positive contributor over time. However, Baker said he would prefer if the company focused more on its core telecom business and returned excess cash to shareholders by boosting its 4.2% dividend. Morningstar has a "buy" rating and $26 fair value estimate for SKM stock.

Telefonica (TEF)

Telefonica is the telecom leader in Spain. Analyst Michael Hodel says shares appear undervalued at current levels after a 19% decline in the past three years. Revenue growth was essentially flat in the most recent quarter. Spain revenue is down about 40% over the past decade, but 0.3% growth in Spain last quarter is an encouraging sign. In addition, nearly 90% of broadband customers are now on bundled service plans. The stock has a 5.7% dividend yield. Morningstar has a "buy" rating and $14 fair value estimate for TEF stock.

Vodafone Group (VOD)

Vodafone has more than 450 million customers, mostly in European markets such as Germany, Italy and Spain. Hodel says shareholders should expect bumpiness in the share price to continue as Vodafone pushes to complete its deal for Liberty Global, deals with increasing competition, invests in its fixed-line networks and prepares for 5G wireless deployments. Liberty will provide even more Germany market share. Even after a 40% dividend cut earlier this year, Hodel says the stock's 4.9% yield is attractive and sustainable. Morningstar has a "buy" rating and $27 fair value estimate for VOD stock.

Top telecom stocks to buy and hold:

-- China Mobile (CHL)

-- China Unicom (CHU)

-- CenturyLink (CTL)

-- Orange (ORAN)

-- SK Telecom (SKM)

-- Telefonica (TEF)

-- Vodafone Group (VOD)



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