I’ve been poking around Telecom New Zealand (NZT) for quite a while. It first showed up in a dividend stock screen when the dividend was paying about 8%. Forbes’ Ken Fisher, who is a pretty good stock picker, recommended it. Now the stock is lower and the dividend is at about ten percent.
What happened? They recently reduced guidance. Then the CFO left. But as the stock goes down, the dividend goes up. This company has generous free cash flow — somewhere in excess of $150M in 2010, likely. It’s got $1.5 billion in debt, but it also has EBIDTA approaching $1B, so it is adequately covering the debt payments and the dividend.
The forward P/E is about 11. Basically, I feel lucky that I waited to buy this stock, because it looked like it was cheap, and then it got even cheaper. But now that it’s fallen to a level of about $6 and is paying 10% dividend, which is almost irresistable to me. I think it’s worth a shot. After all, we are talking about a telecom services stock in one of the healthiest regiona economies in the world.
With this week’s bounce off of $6, the stock could be forming a long-range double-bottom. A buy here with a stop at $5.50 seems like the right thing to do.
(Disclosure: Long NZT)