“The Next Verizon: 9% Dividend!”

By Travis Johnson, Stock Gumshoe, December 14, 2007

This one opens up with some tantalizing language, of course:


It’s from Mark Skousen, from his High Income Alert newsletter — and of course, if you’d please subscribe, he’ll tell you the name of this secret telecom stock that’s paying massive dividends and taking over the world!

Or, being a good and cautious investor, you could just continue reading … let your friendly Gumshoe tell you what the company is, then make a decision once your itchy trigger finger stocks shaking and the blood stops rushing to your forehead. We’ve seen a few Skousen high income teasers before, including Southern (Peru) Copper, which it seems he got on and off of several times, and I don’t know that acting urgently upon reading any of them would have made much of a difference over the long run.

But this company is nothing like Southern Copper — it’s in a whole different industry, one I don’t write about much.

It is a telecom company, and therefore it’s no coincidence that the teaser is coming to us live this week — everyone’s talking about telecom in the wake of AT&T’s great dividend raise and positive comments, and noticing that generally these companies are outperforming the market of late, and pretty significantly. Telecom success stories are everywhere — everyone is flabbergasted by China Mobile, and by mobile telecom growth in developing countries everywhere, of course, but they’re also even taking some interest in Qwest for the first time in ages, after that debt-ridden old punching bag finally announced their first dividend in six years.

I’ve even been taking a gander at a telecom stock lately, though it’s neither this particular one nor in this part of the world.

And as with all good teaser ads, he’s got a “hook” — a catalyst for the stock that will make you want to jump right up and take action so you don’t miss the fun.

In his words, “A recently instituted government policy has created an intense rivalry that promises to open the flood gates of profits… for the last man standing… And I am predicting that the “last man standing” will be this blockbuster newcomer that is making a huge buzz on the global scene.”

This stock went public on the NYSE in February of this year (good clue, that!)

And it has “aggressive” expansion plans, double digit profit margins, and high growth to go along with the big dividends that we already mentioned.

And, as you’ll note from the headline of this article, he calls it “The Next Verizon.”

“This foreign-based telecommunications company is competing in the fight of their life… a fight to be the biggest and best provider for telecommunications services in their home country of Israel.”

They offer pretty much all the standard telecom services that make investors’ mouths water lately — internet service, music downloads, expensive roaming for visitors (this is Israel, which gets a lot of visitors no matter what).

And final clues:

“During an earnings release this month, they reported that earnings doubled to $203 million!”

They recently raised their dividend by 33%, and it’s one of the highest in the market — something like 9%.

So … an Israeli telecom, embroiled in a heated fight for market share, paying a high dividend, and started trading in the US in February?

My friends, the Thinkolator may be in the shop, but that’s still enough for the Gumshoe to tell you that this has to be …

Cellcom Israel (CEL)

The Israeli mobile phone market is indeed crazy competitive, and there is a new government policy that is making for more competition: number portability. That’s the same thing we got here in the US a few years back, the right to keep your cell phone number when you move to a different service provider. The theory is that this allows all the companies to compete more viciously to poach each other’s customers. And in this particular company’s case, the fact that they’ve been a little bit behind in rolling out new services apparently means that they’re more nicely positioned to compete now, when it really matters (they didn’t have to convince the early adopters to try 3G services on their phones since competitors softened up the marketplace first, but they offer them now).

And this company really does pay a hefty dividend, though it’s not quite 9% any more since the shares have been going up pretty nicely the last week or few. The shares are just over $30 for a yield of a bit over 8% … still certainly among the highest dividends for regular stocks on the market.

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And that, of course, should always give you some hesitation. Companies, especially companies in capital intensive industries that need to invest to stay competitive, don’t generally pay quite that high a dividend — even the much bigger telecoms like Verizon and France Telecom have dividends that are a bit lower than that. Still, high dividends in telecom are not unusual — though 4-5% is more of a “normal” high dividend these days.

I don’t know what their payout ratio is, but that would be worth checking into (that’s the percentage of earnings that they pay out as a dividend — usually a dividend is safer and more sustainable for these kinds of companies if it’s down in the 50-70% range, and well below 100%.) Some high dividend companies are able to pay out huge dividends largely because of depreciation on their huge capital assets, without necessarily having the earnings to back them up in the long run. Again, don’t know if that’s the case here and I haven’t looked at their dividend policy, just something to look for as you do your research.

I don’t know much about the Israeli market, though I did find this interesting interview with an investment advisor there, talking specifically about Cellcom (he likes it) and about their competitive position — probably worth a read if you’re interested in this one.

Skousen says that “Currently, the 9% dividend company is embroiled in the battle of its life for a slice of the Israeli cell phone market share. In fact, you’d be hard-pressed to find a more competitive market in the whole world than Israeli telecom. The company is up against 3 of the toughest competitors you’ll ever see, including American behemoth Motorola.”

And that’s the other thing to think about — the other big players in Israel are strong. Hutchison, the massive Hong Kong conglomerate, is part owner of Partner Communications, another publicly traded competitor in Israel. And Motorola is indeed behind another competitor, Mirs. The other big one in this four-horse race is the former government-owned telecom, Bezeq. So no shrinking violets there.

Skousen thinks that Cellcom will be “Offering the hands-down best deal on the market, this company will be flooded with hundreds of thousands of new customers and boatloads of profits… starting this week!”

I don’t know if that’s true, and I certainly don’t know what kinds of deals the competitors are offering to lure customers in Israel — but I do know that global telecom players are indeed popular now, and this this one is Skousen’s pick. Whether or not that’s good enough for your portfolio — well, now’s your chance to research and decide.



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December 14, 2007 5:23 am

CEL’s website is quite informative. In late November it noted a possible class action suit being filed against the company for US $110,000,000.

Also, another source I quickly checked indicates that the dividend is paid semi-annually — bringing the effective yearly yield down to the 4.5% range.

December 14, 2007 1:30 pm

It’s hard to say what the ongoing dividend is, because they declare it every quarter, but they are currently paying a quarterly dividend, at least according to their filings of last Spring that described the dividend policy (and they have paid three dividends this year so far). If the’ve changed to a semiannual payout I’ve not seen the announcement, which doesn’t mean it didn’t happen.

If they do continue paying the same dividend amount for the next four quarters, which is certainly not guaranteed, the yield would be in the range of 8-9%. When they went public they had a policy to dividend out “at least 75%” of net income, though I don’t know if that has changed.

Thanks for the comments — always hard to judge dividend payouts from foreign companies who do not necessarily value a sure, steady payout the way big US companies do.

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December 14, 2007 4:20 pm

Where does Level Three (LVLT) fit into all of this? I always thought they might be the “last one standing” in the telecom fight. Doc B

December 15, 2007 5:18 pm

I wish I had found your site far earlier! Your to-the-point writing mixed with a bit of humor is excellent and makes for a good read.

Is there anywhere where you track the result of the various stockpicks by the newsletters?

December 16, 2007 2:04 am

As far as I know, and I haven’t studied them, LVLT pretty much just sells wholesale bandwidth — not much to do with wireless. I might be misinformed on that.

And krl, thanks for coming! Spread the word, I’d love it if we were easier to find. I do track the teaser picks, there’s a spreadsheet with live prices linked in the sidebar, and the top picks are at the bottom of the page every day.

December 16, 2007 1:05 pm

Please keep in mind its a semi annual dividend….
Does anyone have access to WITHOUT BORDERS from Casey Research???
Please advise how can we read them….

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