Wednesday, February 13, 2013

Recent Buy: NTT

Feb 13, 2013: Bought 110 shares of NTT at $22.43 per share.

Nippon Telegraph & Telephone Corp (NTT) is a provider of fixed and mobile voice related services, IP/packet communications services, sales of telecommunications equipment, system integration and other telecommunications related services in Japan. Shares of NTT are represented by an American depository receipt (ADR) at the New York Stock Exchange (NYSE).

NTT is a Dividend Contender with an 11-year streak of dividend increases. It pays dividends semi-annually, in March and September. At $22.43 per share, the last dividend payment of $0.4853 per share represents a yield of 4.33%.

Fair value estimates for NTT vary from $31.00 (MorningStar) to $32.60 (S&P Capital IQ) to $43.11 (Graham Number method). The current price of $22.43 is discounted by about 31% to the median of these estimates ($32.60), as required by my stock selection criteria.

The following table provides some key statistics for NTT, with highlighted values relating directly to my stock selection criteria.
The sum of NTT's dividend yield and its 5-yr dividend growth rate is 18.23%, well above the 12% the Chowder Dividend Rule requires. The EPS Payout Ratio of NTT is 0.97/2.03 = 47.8%, well below my limit of 65%.  The Debt to Equity Ratio of NTT is 54%, somewhat above my 50% limit. My 7-yr weighted average dividend growth rate for NTT, which favors more recent dividend increases, is 19.19%.

I require a 5-yr total payback percentage of at least 16%. Assuming no further dividend increases, the 5-year total payback percentage for NTT equals (500*0.97)/22.43 = 21.62%. Any dividend increases in the next 5 years would improve the payback percentage. 

NTT passes all but one of my selection criteria and, consequently, earns 6 stars: (*******)

Other ratings for NTT

(see Recent Buy: CVX for details on these ratings)

MorningStar Rating (*****)
The Motley Fool's CAPS Rating(*****)

Final Remarks


Recent times haven't been so good for NTT, with shares falling as much as 19% in the past 4 months. Free cash flow has been trending downwards and NTT is facing stronger competition. On the other hand, NTT is strong financially, with reasonable debt levels and expanding profit margins. Its P/E multiple is lower than the average for all stocks. NTT's rich dividend is very attractive, especially at its current low valuation. Although its size makes substantial growth more difficult, NTT has a variety of options it could choose from to make operations more efficient and squeeze out more shareholder value for investors. For example, NTT is in the process of repurchasing about 3.4% of its own shares.

Generally, I like telecom stocks because of their reputation for dependable dividend payments. As an international stock, NTT is an added bonus because it diversifies my portfolio geographically as well as by industry.

This purchase adds $106.77 of expected dividend income to DivGro for the 2013 calendar year, an amount which should increase when NTT announces its next dividend increase.

Full Disclosure: Long NTT

2 comments :

  1. Nice Site!

    I like your selection process and watchlist! If you stick to it I think you'll do well. I'm going to check a few companies on your list that I'm not familiar with.

    Even though the yields are great, I've had poor results with MLPs. It seems like the ones that I follow, but don't actually buy, are the ones that perform. MLPs are very difficult to understand and evaluate in my experience, use caution!

    Anyways I really like what you're doing here! I can tell you put a lot of time into this. Thank you!

    CI

    ReplyDelete
    Replies
    1. Thanks for stopping by, CI!

      You're right about how tricky MLPs are to evaluate. It took me some time to evaluate ETP before convincing myself that it would be a good addition for DivGro. And, as I mentioned, I don't really like dealing with MLPs at tax time. For that reason alone, I won't be buying many of them!

      I own a few stocks on my watch list in one of my other portfolios. Some are higher yield stocks that do not raise their dividends regularly, but earnings growth more than sufficiently cover the higher yields. They're too expensive presently to meet my fair value criterium for entry into DivGro.

      Thanks for your kind words -- your site has been a great source of learning for me.

      Cheers
      FerdiS

      Delete

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