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Thursday, June 6, 2013

Stock Analysis: CHL

China Mobile Limited (CHL) is an investment holding company. The company and its subsidiaries provide mobile telecommunications services to more than 700 million customers in Mainland China and Hong Kong. These services include voice, data, applications, and information services.

CHL has a streak of 7 consecutive years of dividend increases. It pays dividends semi-annually in the months of May and September. CHL's annual dividend is listed at $2.18, which represents a dividend yield of 4.25% with CHL priced at $51.28 per share.

Over the past 10 years, CHL has outperformed the S&P 500 handily, returning about 469% compared to about 63% for the S&P 500 and 65% for the Dow Jones. Performance for the past 5 years is not so impressive. CHL actually lost about 17% over this period, though EPS growth topped 8% and dividend growth topped 14%.


Fair value estimates for CHL vary from $58.44 (Graham Number method) to $60.00 (MorningStar). The current price of $51.28 is discounted by 15.48% to the average of these estimates ($59.22).

CHL passes the following of my selection criteria:
  • Sum of dividend yield (4.25%) and 5-yr dividend CAGR (14.16%) is 18.41% (Chowder Dividend Rule)
  • EPS% Payout ratio is 42.04% (below 65%)
  • Debt to Equity ratio is 0% (below 50%)
  • 7-year weighted average dividend growth rate is 13.35% (at least 7%)
  • Forward P/E ratio is 10.34 and the trailing twelve month (TTM) P/E ratio is 9.90 (below 16%)
  • 5-yr total payback percentage is 22.22% (at least 16%)
My confidence in CHL's ability to continue with dividend increases is moderate. Except for this point, CHL passes all my selection criteria and earns 7 stars: (*******)

Other ratings for CHL

(see Recent Buy: CVX for details on these ratings)
S&P Capital IQ's Stock Report(*****)Hold 
MorningStar Rating(*****)
The Motley Fool's CAPS Rating(*****)

Final Remarks

CHL pays a generous dividend. If I were to purchase 48 shares at the current price of $51.28, those shares would provide annual dividend income of $104.53 to DivGro. After my recent purchase, I'm down to less that $1000 in cash, so I'll have to wait for further cash inflows into DivGro before buying more shares.

CHL is as a high-profile monopoly in China with a 70% government stake. With such a large stake, the company's dominance will be protected by the government. Additionally, evidence suggests that CHL is laying the groundwork to become a major iPhone carrier.

A risk factor for CHL is that questions are being asked about the growth prospects in China. Growth seems to be slowing down, albeit from very high levels of about 8% per year.

Analysts point out that the majority of Chinese may be skipping the personal computing revolution in favor of smartphones. This would make CHL a major growth prospect and a good long-term investment. For this reason, I may revisit CHL in future when I have enough cash to buy more shares.

Full Disclosure: I don't own any CHL shares and I'm not planning on buying any soon.

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