This Telecom Could Afford to Double Its Dividend
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There are a couple of impressive numbers associated with China Mobile (NYS: CHL) . First, it has more subscribers than the populations of the United States, Russia, Germany, France, and Saudi Arabia combined -- oh, and add Latvia in there, too.
That's 628 million Chinese cell-phone users sending their hard earned renminbi -- "the people's currency" -- into China Mobile every month. That makes it the largest wireless carrier in the world, one that's been growing by about 5 million new subscribers each month.
Here's the second mouthwatering number: $50 billion plus in cash that China Mobile is sitting on. That's almost twice as much as the $28 billion Apple has stashed away in its mattress. But -- and don't we all wish we had this problem -- China Mobile doesn't seem to know what to do with its treasure.
Here, let me help
One suggestion I have -- and I'm sure many of the company's stockholders would agree -- is for China Mobile to increase its dividend. Generously. Its projected yield of 3.7% is certainly nothing to sneeze at. That yield compares favorably with other dividend stalwarts, such as Johnson & Johnson at 3.6%, Procter & Gamble at 3.4%, and Medtronic at 2.9%, but it pales in comparison with plenty of other telecoms. Check out Vodafone's (NYS: VOD) 7.4% yield, France Telecom's (NYS: FTE) 8.4%, or Telefonica's (NYS: TEF) 8.9%.
Image how appetizing China Mobile could become with its huge growth potential (China's population is 1.34 billion) coupled with a yield of, say, 6%, which happens to be AT&T's (NYS: T) projected yield. AT&T is able to pay that with a dividend-to-free cash flow payout ratio of 67%. China Mobile's dividend-to-FCF payout ratio is well below that at 43%. Raising its dividend yield to 6% would bring that ratio up to around 69%.
As you can see from the table below, none of these other telecom giants can come close to the size of China Mobile's wallet.
Cash (Latest Figures)
Dividend-to-Free Cash Flow Payout Ratio
|China Mobile||$51.6 billion||3.7%||43%||9.9|
|China Unicom||$2.9 billion||0.5%||Negative free cash flow||26.4|
|China Telecom||$4.1 billion||1.5%||17%||15.6|
|France Telecom||$7.0 billion||8.4%||61%||7.3|
Sources: Cash figures and payout ratio from latest earnings statements; yield and p/e from Morningstar.
So much money
It's obvious that China Mobile is trying to be very conservative with its money, and that's certainly not a bad thing. How many companies have we seen that have gone out and acquired companies that add nothing to, and may even detract from, the purchaser's core business? But just hiding cash away does nothing to increase the company's value to its stockholders.
China Mobile Chairman Wang Jianzhou seems to be saving his coin for upgrades to his company's 2G and 3G networks, and for the introduction of its 4G TD-LTE network. These are all wise goals, of course, but I also think that putting some more of that "people's currency" back into the pockets of the people who have invested in his company is important, too.
My takeaway ... and a CAPS pick
I haven't yet made any picks in Motley Fool CAPS, but I think China Mobile is a good one to start with. I'm betting that the dividend will come up, perhaps not as steeply as I would like, but at a reasonable growth rate. I may even plunk some of my own money down on it when my Foolish trading guidelines allow it.
Are you like me and need to squeeze as much income as possible out of your investments? If so, get a list of 13 more high-yielding stocks compiled by Motley Fool analysts.
At the time this article was published Fool contributorDan Radovskyowns shares of AT&T. The Motley Fool owns shares of China Mobile, Telefonica, and Apple.Motley Fool newsletter serviceshave recommended buying shares of France Telecom, AT&T, Vodafone Group, China Mobile, and Apple and creating a bull call spread position in Apple. Try any of our Foolish newsletter servicesfree for 30 days. We Fools don't all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.
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