Vodafone Group PLC (VOD)

British company. As a Canadian taxpayer you have to pay withholding taxes in Europe. This company is facing big capital expenditures with 5G. They have a heavy debt load. They own little companies in many places in Africa and Asia. He prefers AT&T (T-N) or Verizon Communications (VZ-N). Thinks the dividend is safe. (Analysts’ price target is $24.88)

VOD-Q vs. VZ-N. He prefers Euro telcos to Canadian. They have room in Europe to add to the bill per subscriber.

He thinks this could be a yield trap. The problem is there is there is no structural growth opportunity. The challenge in a rising yield environment is its share price may not keep up with others. The underlying business is vulnerable to a recession. Yield 6.5%.

If you bought this before the sale of Verizon wireless, you received a very large one-time special dividend of shares along with cash. If you did not participate in the dividend, then you are probably significantly underwater. Since then, a number of things have happened. European telcos are now doing fibre to the homes and they not seeing top line growth or revenue growth. Longer-term, there is some good upside. It’s also down a little on the noise of BREXIT risk. If looking for a global company with a decent dividend with some upside, it’s reasonable value at these levels.

Not a huge fan of telecom companies globally. However, their dividends are sustainable, so he wouldn't be worried about a dividend cut in the future. However, this has been a zero-growth company, and will probably remain so. They are into cost cutting that will fuel marginal earnings growth, but it is not attractive to him. Rising interest rates will mean these kinds of companies will be negatively affected.

His recommendation would be to stay away from all telecommunication companies. This is probably the most losing industry. It was 10% of the S&P 500 in 1970, and it is only 2%-3% now. Thinks it is actually going to disappear in the next 12 months. Index providers are going to sweep it under the rug, because it has been such a foolish industry to invest in.

Most global telcos are faced with stagnating growth. They all have hefty dividend yields and are starting to get their costs down in the face of increasing competition. Not a huge fan of the sector. People are simply unplugging and streaming, which puts pressure on them. A solid dividend story, but not a growth situation.

There is nothing wrong. They are a good dividend payer. It is probably the one in telecom he would choose, but has no exposure to the sector at present. It gives you a nice steady dividend yield. The one area with opportunity is in India where they are a significant player.

VZ-N vs. VOD-Q. He does not follow the US market. VZ-N would be the best in terms of the US and VOD-N would be the best internationally. Owning both would be a good strategy.

All European telcos are basically having the same thing that is happening with US telcos. We are in an environment where people are starting to chase growth and we are at the top of the cycle. Companies that produce safe and steady dividends are no longer sexy. However, the problem between Europe and the US is a very different story, and sector rotation doesn’t really apply. Europeans are now starting to grow revenue as well as earnings. They have top line growth which we don’t have in North America. There is also expansion and acquisitions going on. The largest market for this company is Germany. The dividend is safe. If we see more BREXIT noise occurring, buy this on a dip.

(A Top Pick Oct 19/16. Up 9%.) They did a deal in India, where they merged their Indian business with India’s Idea Cellular. This is still a Buy. Dividend yield of 7%.

Orange (ORAN-N) or Vodafone (VOD-Q)? Headquartered in the UK, but a global operation with its largest market in Germany. The driver for European operations, which is going to be important for both, is that they are now backing the “fibre to the home” strategy. For a very long period of time, European operations did not have revenue growth. Now that “fibre to the home” is moving forward, regulators have allowed them to charge more profitability. Top line revenues are growing for all European telecoms and they are all performing well. Between these 2, you will get more of a pure play from Orange, but equally, this one looks cheap because of the BREXIT risk. If the pound drops off, you could buy this. He feels both are good here.

He is not in the sector. A lot of people are attracted by the yield. He would have to have growth as well as the dividend. There is nothing fundamentally wrong with it.

(Market Call Minute) They have competition in Europe and are not doing that well themselves.

The market has mistakenly perceived this as a UK company, but most of their earnings come from outside the UK. Their biggest market is actually Germany. There have been a number of recent developments. They have pushed the Indian assets into an ID cellular, which enabled them to de-consolidate some debt. All of that has happened at the same time where the Europeans have now pushed the fibre to the home, and it is a 1^st time we are seeing revenue growth for European telcos for the last 15 years. He thinks there is more upside.