Tuesday, July 20, 2010

Telefonica - A window of opportunity for investors?

Telefonica (TEF) is the 3rd largest telecom service provided in the world and its stock price has recently sunk to level not seen since the market correction in latter part of 2008 and early part of 2009. Is TEF’s current price drop an opportunity for investors to buy?

TEF is a Spanish phone company with 265 million subscribers worldwide and a market cap of over $94 billion. It has operations in Western Europe, Central America and South America. Approximately two thirds of its operations exist outside of Spain with major markets in Latin American countries and Germany. Since June of 2003 the company has issued a dividend to shareholders and consistently grown its dividend distribution. TEF is a growth and value story with one leg in a developed economy experiencing its share of turmoil, while having another leg in the developing world of Central and South America.

If you are an investor looking for a sizable and consistent dividend yield with an opportunity for share price appreciation, then TEF should be on your radar. The stock currently yields over 6% annually and the company’s management has shown their desire and will to increase the company's dividend payout. The company is diversified in its markets of operation with market share in Western Europe and developing/growing Latin American countries. This enables TEF to be in a position to support itself with cash flow from its developed market, while expanding into new areas that are poised for growth.

Beyond its dividend and its market position, TEF has a number of key statistics that make it all the more appealing as a potential investment. TEF is less volatile than the market with a beta of .85, an A- a credit rating by S&P, 2009 free cash flow of $8.8 billion and a trailing P/E ratio of 9.35. The stock is currently trading at $62.26, which is roughly $9 above its 52-week low.

TEF Chart
As an investor, if you are of the opinion that Europe is not on the precipice of economic collapse and that Central and South American markets are poised for growth in the near and long-term, then I believe given the information above, TEF might be a worthwhile addition to your portfolio. The company is at least worthy of consideration. It is a well-developed company with a stock price that appears undervalued. It offers a strong dividend and the opportunity for share price growth. As a dividend conscious investor that also loves buying companies that are well positioned to grow in value, I will admit TEF is a very large blip on my investing radar screen.

Disclosure: No position.

This article was written by http://www.themarketcapitalist.com/. You may email questions or comments to Dominico Johnston at djohnston@themarketcapitalist.com.


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