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Now Definitely Is Not the Time to Give up on Nokia Stock

Will Healy

Nokia (NYSE:NOK) stock continues to struggle. Amid its most recent earnings disappointment, Nokia stock has fallen back toward the $5 per share level.

nokia stock

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This price action merely keeps Nokia stock in the range in which it has traded for more than two years. However, the recent price action, as well as political factors, help to make it a more appealing equity for income investors.

Nokia is no stranger to transformation. Nokia lead the market in cell phone sales before Apple’s (NASDAQ:AAPL) iPhone made its phones obsolete. Also, the company began as a pulp mill in the 19th century and even made toilet paper as late as the 1960s. Given that change, the move from cell phones to 5G telecom equipment does not seem that dramatic.

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However, making the transition to a new industry and translating that into stock gains remain two different propositions. Here, NOK has stumbled amid stagnant stock growth and a huge earnings miss that has taken Nokia stock back to the $5 per share range.

In terms of stock growth, I think my colleague Luke Lango correctly pegged NOK as a “show me proposition.” It still trades more than 80% below levels Nokia saw in its glory days before smartphones hit the market. Moreover, despite leading the way in 5G equipment, it has generated anemic revenue growth.

Decline Boosted Nokia’s payout

That said, Will Ashworth has also pointed to the bright dividend prospects. The current 29-cent per share dividend yields over 5.6% as of the time of this writing. This greatly exceeds the payouts of peers such as Cisco (NASDAQ:CSCO) and Ericsson (NASDAQ:ERIC), both of whom have seen higher stock price growth than NOK over the last two years.

I see a case for income-oriented investors buying NOK at these levels. The stock has traded in a range for the last 2.5 years. Earnings growth will provide the needed cash to maintain the payout. Also, while it does not sell at the absolute low point of this approximate $4 per share to $7 per share range, I see only limited downside.

Nokia and the Trade War

Moreover, to Lango’s point, NOK could get its chance to “show me” thanks to the U.S.-China trade war. Its domicile in Finland may work to the company’s advantage. China Mobile (NYSE:CHL) had signed contracts with both Nokia and Ericsson for 5G equipment before negotiators announced a recent truce. Despite the dominance of China-based Huawei In that country, this shows that Chinese companies still want to establish relationships with key Western 5G vendors.

Also, I think the on-again, off-again restrictions on Huawei could still help bring more business to NOK. The tenuous nature of the sanctions keeps Huawei under a cloud of uncertainty. Despite this change of heart, the Trump Administration could re-impose sanctions on Huawei at any time should trade talks break down.

Communications firms can avoid this risk by choosing a vendor like Nokia. Although some companies will choose Ericsson, having one less competitor still helps NOK. While it still has much to prove, NOK appears well-positioned for dividend investors from both technological and political perspectives.

The Bottom Line on Nokia Stock

NOK stock appears well-positioned to deliver returns for investors thanks to its dividend and the current political climate. Yes, other equities such as Cisco and Ericsson have delivered higher stock price growth in recent years.

Still, the latest drop in NOK to the $5 per share range has taken its dividend yield above 5.6%. At nearly triple the S&P 500 average, this makes Nokia stock attractive to investors who need to generate cash.

Furthermore, its base of operation in Finland keeps the company at arms-length from the U.S.-China trade war. Not only can it attract business in China, but it should also win clients in other countries from those fearful that Trump will again impose sanctions on Huawei.

With a generous cash return now and possible stock appreciation coming later, NOK can serve investors well on two fronts as it helps to bolster the world’s move into 5G.

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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