Amid seemingly improving fortunes, Nokia (NYSE:NOK) continues to suffer. Nokia stock fell by 10% after its quarterly report. Traders sold NOK amid earnings and revenue misses. Investors keep waiting for the predicted increase in revenue and earnings brought about by the rise of 5G. This latest report leaves many wondering if it will ever happen.
As a result, many see some of Nokia’s peers as better investments. However, despite the struggles, a buy case for a specific type of investor remains.
Lost Confidence and Nokia stock
To be sure, NOK stock has become a frustrating equity. I had taken a bullish on Nokia due to 5G. However, the latest earnings report has forced me to admit that the profit rollout has come more slowly than expected.
InvestorPlace contributor Vince Martin wonders if those profits will ever appear. He believes Nokia suffers because of a trust problem within the Finland-based company.
He may be right.
Nokia has kept its guidance steady for both 2019 and 2020. But that also leaves investors wondering if 5G profits will actually start coming in the second half of the year.
Nokia has missed opportunities since at least 2007. At that time, this leading cellphone company failed to see the future. As a result, it saw its business quickly evaporate soon after Apple (NASDAQ:AAPL) released its iPhone.
Also, as Martin correctly points out, the merger with Alcatel-Lucent has met with declines in Nokia stock. The stock suffered further in March when the company revealed that some transactions with the Alcatel-Lucent division faced compliance issues.
To its credit, NOK has transformed itself into a 5G equipment provider. However, it seems to lack the drive to succeed in its new industry. Political pressures have all but eliminated Huawei as an option in many countries. Unfortunately for investors in Nokia stock, the company has not benefitted from the reduced competition.
Nokia Is Falling Behind
On the other hand, eliminating a major rival has boosted Ericsson’s (NASDAQ:ERIC) numbers. Ericsson stock rose by 7.3% after it announced an earnings and revenue beat in its last quarterly report.
Its 17.8 forward price-to-earnings (PE) ratio comes in higher. Still, that appears cheap in light of expected profit growth of more than 272% this year and a predicted 31.7% earnings increase in 2020.
It also lags firms such as Cisco Systems (NASDAQ:CSCO) in other areas of networking. Double-digit profit growth, a 16.4 forward PE ratio, and the track record of dividend increases make Cisco a viable option.
Dividend Investors and Nokia Stock
Despite these metrics from its peers, I see a case for buying Nokia stock, at least for dividend investors. The 24-cent per share annual dividend yields about 4.6% at current prices.
Given the expected demand for 5G, I do not see Nokia’s financials warranting a dividend cut. Moreover, it surpasses Cisco’s yield of around 2.6% as well as Ericsson’s which comes in at about 1.2%. The payout also gives investors some return even if it remains rangebound.
Furthermore, Nokia’s forward PE comes in at about 13. If it fulfills some of its potential as a 5G equipment provider, profits should finally rise. That could take it above $7 per share, a price level it has not surpassed since 2015.
Concluding Thoughts on Nokia Stock
Amid the struggles, the buy case for Nokia remains lucrative for dividend investors. Nokia’s latest earnings and revenue miss confirmed some long-held negative feelings about NOK stock.
In recent weeks, compliance issues have weighed on NOK. Moreover, missing on revenue and earnings even with less competition has many investors perplexed. This has arguably made a case for investors to choose Ericsson or Cisco over Nokia.
Nonetheless, Nokia leads its peers by a wide margin on dividend yields. Moreover, the rise of 5G will likely push NOK higher despite itself. Even if Nokia fails to produce stellar earnings reports, the cash payouts should keep dividend investors happy for the foreseeable future.
As of this writing, Will Healy did not hold a position in any of the aforementioned stocks. You can follow Will on Twitter at @HealyWriting.
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