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Hi foolishwelder

"cps" is just short hand for cents per share. I should also point out that all my figures were in NZ dollars.

And you would be right to keep your eye on changes to the divi payout. This is one of the risks with this investment - and there are always risks. Telecom cut the dividend payout ratio from 85% of net earnings to 75% of net earnings last year in response to the NZ govt announcing a review of the telecommunications industry in NZ.

Other risks would include -

Regulation. This is probably the big one and we have seen the NZ govt stick its nose into the telecommunications landscape in NZ over the last year or so. This has really shaken the industry up and goes to show that regulatory risk is very real for utilities - particularly in telecommunications which is increasingly being seen as an almost essential service (think about what broadband speed and cost can do for an economy's competitiveness).

General technology risk. If Telecom fail to keep up with changes in the landscape, spends money going down a blind ally or generally doesn't keep up – shareholders will suffer. For example, what does voice over internet mean for Telecom's future? I don't think anyone really knows the answer to these types of questions so I don't really see the point in worrying too much.

Competition from other providers. Telecom used to have this sewn up which was nice - but this is no longer the case and NZ has a largely deregulated environment that encourages competition, so it's inevitable that additional service providers will ultimately enter the market and compress margins.

But the biggest risk by far to my mind is the potential for management to screw up (again). I still remember the announcement in 2000 that the dividend would be cut in order to pursue growth opportunities in Aust. That was a great idea that very definitely didn't work out and ended up costing shareholders a lot of money. There is always the risk that management will think up some strange new thing to do with the cash the business generates.

There are probably other risks as well - but nothing that's keeping me up at night. For me, Telecom sits in my "high yield portfolio" which is a group of companies in diversified industries, all paying above average dividends, all with plenty of dividend cover, all big to mega-big companies. Ideally I like to see to dividends rising over time but for me this isn't essentail - so long as they pay big fat dividends and meet my other criteria I'm happy. It's a strategy obviously geared towards generating an income and is the strategy that gives me the most peace of mind of the various I have tried / looked at.

Foolish best

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