Dear Mr. Berko: I'm looking at Swedish mobile phone company Telia, whose shares trade at $7.77. Revenues and earnings are down because of poor earnings in many of the foreign units it's selling. I'm thinking of buying 2,000 shares because the 36-cent dividend yields 4.9 percent. My stockbroker believes that the stock will double in the next couple of years, even though it may take that long for management to get its house in order. Please give me your thoughts on this. I would use $16,000 from a $35,000 certificate of deposit that came due to buy 2,000 shares. I'd have $19,000 in cash left over to invest short term. Is there a five-year CD yielding over 1.8 percent in which I could invest this $19,000? I want to keep it liquid. — WE, Vancouver, Wash.
Dear WE: Sweden, home to Carl XVI Gustaf and one of the 10 sovereign monarchies in Europe, is also home to Johan Eric Dennelind, the CEO of Stockholm-based Telia Co. AB (TLSNY-$7.77). Telia, founded in 1853, is a $10.3 billion-revenue telecommunications company that sells mobile, broadband and fixed services — including telephone, data and TV services — to customers in Sweden, Finland, Norway, Denmark, Spain, Lithuania, Estonia and Latvia. TLSNY has been in business longer than AT&T (I didn't know that the Swedes had telephones in 1853), and its 36-cent dividend yields 4.9 percent, a little less than AT&T's.
Though TLSNY's revenues are foundering, its operations are improving. For the first six months of 2016, management posted operating margins of 16.98 percent and net profit margins of 7.89 percent. And considering the wonderfully generous employee perks, including how well its 21,000 workers are compensated, those are very impressive numbers.
However, competitive pressures have wounded TLSNY in Kazakhstan, Uzbekistan, Azerbaijan, Tajikistan, Moldova and Georgia, and management has turned off the switch in those countries. Though those countries have accounted for 21 percent of revenues, management believes that TLSNY's earnings will improve nicely when they are completely off the books. Last December, TLSNY sold its Nepalese unit to Ncell for $1 billion, and in June, TLSNY sold Yoigo, its Spanish mobile phone unit, to Masmovil for $610 million. These sales will help streamline the company, reduce costs, improve the cash position to $2.1 billion and increase its book value to $2.
After several years of declining revenues and earnings, management finally found the guts to restructure the company. And that's good. But the company's total debt, $11.3 billion, exceeds revenues by $1 billion, and that's not good. Morgan Stanley does dislike the stock a bit less now and has raised its rating to a couple of ticks above neutral. And Goldman Sachs, which is doing investment banking for TLSNY, has become mildly bullish. The 4.9 percent dividend does appear temporarily safe, but a little voice is telling me to keep my money in the U.S. Using safe CD money to buy a stock yielding 4.9 percent is crazy. I don't think Telia's future risks are manageable.
I believe a blue chip investment that has increased its payout annually for over 20 years, has a long history of attractive payouts and currently yields 5.3 percent is a better investment. And a 5.3 percent yield is better than that of any CD I can find east, north or south of Vancouver. That investment is AT&T (T-$37.03), which I consider a proxy for CDs or corporate bonds. I can't predict with any degree of certainty what T's share price will be in 2021, but I can predict with a high degree of certainty that its $1.92 dividend will be raised five times between now and 2021. Yes, AT&T's common stock is riskier than a CD. It changes in value every day, though in five years, it's likely to be worth more than $37.03. Don't be concerned if T's value fluctuates; it's liquid. You can sell a few shares anytime you wish if you need cash. The dividend is secure, dependable and like clockwork. It pays four times a year and, by 2021, could be raised to $2.20. Today's 5.3 percent yield for AT&T is a no-brainer CD substitute, and some observers are beginning to say that the potential merger with Time Warner could be sweet plum.
Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775, or email him at [email protected] To find out more about Malcolm Berko and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate website at www.creators.com.