| Cellcom Israel (CEL): Dialing for dividends |
| Monday, August 11, 2008 |
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The editor of High Yield Investing explains, "In fact, there are more cellular phones than people." Here's her look at her latest "High Yield Stock of the Month," which offers a double-digit dividend yield. "Israelis use them at home instead of traditional fixed line phones. Every 12-year old kid has a cell phone glued to their ear. But the market still has room to grow. The nation's population is growing at almost 2% a year, thanks to a continuous influx of new immigrants. "The economy has grown over 5% a year for the past four years, and a healthy economy means more people with more money to spend on wireless services. And spend they do -- telecom services accounts for over 4% of the nation's economy. "Since new management took the reins in late 2005, the company has upgraded its network and launched a variety of cutting edge products and services. "Cellcom's ultra-fast 3G wireless network allows customers to use their phones for more than just voice communication. Subscribers can now text message, download music, or video conference. Revenue from these new data applications climbed over 45% last year "The company's dividend policy is to distribute at least 75% of annual net income to shareholders in quarterly installments. Besides the regular dividend, management also seeks to distribute at least 50% of earnings each year. "Over the past year, the company paid out $3.93 per share, including regular quarterly dividends of $2.43 and a special payout of $1.50. That gives the stock a yield of 11.8% of the recent share price. "According to Israeli tax law, the company must deduct at ource 20% of the dividend amount payable to U.S. shareholders. "However, U.S. investors can claim a foreign tax credit for this amount against their federal income tax. The dividend should qualify for the 15% reduced dividend tax rate, making the stock suitable for a taxable account. There's no dividend reinvestment plan. "They are selling at just 11 times next year's projected earnings, which is a bargain considering the double-digit dividend yield. Given the growing competition in the country's wireless market, however, CEL is suitable for a moderate-risk investor." |
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