Telefonica: Company With High Dividend Yields, Low Payout Ratios

For our dividend portfolio we follow the strategy pioneered by Tweedy Browne of buying companies with high dividend yields but low payout ratios. You can read Tweedy Browne’s investing studies here. Telefonica (TEF) is one company we own that fits the bill. TEF offers a current yield of approximately 6% and over the last five years has paid out only an average 41% of free cash flow as dividends.Telefonica is headquartered in Spain and is the fifth largest telecommunications company in the world with 278M accesses (or total connections) as of June 2010. The company has operations in Spain, Europe and Latin America. Although the company is Spanish, 70% of sales are outside Spain. A detailed overview of Telefonica’s business and growth is shown in Appendix A.Many telecom companies in developed markets have taken on the persona of utilities with low growth and modest returns on capital for... Read more