Over the past two years Telefonica SA(TEF, Financial) has raised its twice-annual dividend by a total of 52%. And it plans an additional 5.3 percent boost to an annualized rate of EUR1.60 (USD2.20).
Telefonica shares, however, are down nearly 10% in 2011. They’re 25% off their highs and yield more than 10% — a clear sign many investors don’t believe management’s repeated assurances the dividend is safe.
At the heart of the skepticism is Spain, which is suffering from 21% unemployment. Telefonica’s first-half 2011 revenue surged 6.3%, paced by 18.4% growth in Latin America and 18.5% in global wireless sales.
The company now has 227.3 million wireless customers, up 8% over the past year. It also held revenue loss in Spain to just 1.9%, thanks to cost cutting and broadband growth.
The question is whether things are meaningfully worse now. For example, Spain has frozen rates for traditional phone lines, and all three major credit raters have cut Telefonica’s rating.
As of now, however, the company is still expanding, particularly in Brazil. And a EUR1 billion bond sale last month — at virtually the same credit spread as in January 2011 — shows it can still sell debt cheaply.
Moreover, debt maturities through 2012 are barely 4% of market capitalization.
Analyst opinion is split at 28 buys, 12 holds and 6 sells. Insiders aren’t: 29 have purchased more than 650,000 shares since mid-June. That’s good company.
Telefonica shares, however, are down nearly 10% in 2011. They’re 25% off their highs and yield more than 10% — a clear sign many investors don’t believe management’s repeated assurances the dividend is safe.
At the heart of the skepticism is Spain, which is suffering from 21% unemployment. Telefonica’s first-half 2011 revenue surged 6.3%, paced by 18.4% growth in Latin America and 18.5% in global wireless sales.
The company now has 227.3 million wireless customers, up 8% over the past year. It also held revenue loss in Spain to just 1.9%, thanks to cost cutting and broadband growth.
The question is whether things are meaningfully worse now. For example, Spain has frozen rates for traditional phone lines, and all three major credit raters have cut Telefonica’s rating.
As of now, however, the company is still expanding, particularly in Brazil. And a EUR1 billion bond sale last month — at virtually the same credit spread as in January 2011 — shows it can still sell debt cheaply.
Moreover, debt maturities through 2012 are barely 4% of market capitalization.
Analyst opinion is split at 28 buys, 12 holds and 6 sells. Insiders aren’t: 29 have purchased more than 650,000 shares since mid-June. That’s good company.
