Wednesday, September 17, 2008

Nokia (NOK) Stock Dividend Analysis

Nokia Corporation designs, manufactures, and sells a range of mobile devices and networks with services and software worldwide. The company offers mobile phones and devices based on the GSM/EDGE, 3G/WCDMA, and CDMA global cellular standards under the Nokia brand, including the Nokia Nseries, the Nokia Eseries, and Vertu sub-brands. It also provides non-cellular technologies, such as Bluetooth, WLAN, and GPS


Nokia is an international dividend achiever. From the end of 1999 up until September 2008 this dividend stock has delivered an annual average total return of 5.00 % to its shareholders. Nokia’s share price has not recovered yet form its all time highs in the early 2000. The stock has lost over 45% of its value so far in 2008. In addition the company recently gave a warning that its third quarter market share will be negatively affected by the global slowdown.

At the same time company has managed to deliver a 22.30% average annual increase in its EPS since 1998.

The ROE has recovered in recent years from its lower levels around 20% to rise over 60% in 2007.

Annual dividend payments have increased by an average of 23.40% annually since 1999, which is almost the same as the growth in EPS. A 23% growth in dividends translates into the dividend payment doubling almost every three years.

If we invested $100,000 in NOK on December 31, 1998 we would have been able to purchase 6642 shares (Adjusted for 2:1 and 4:1 stock splits). In March 1999 your annual dividend income would have been $764. If you kept reinvesting the dividends though instead of spending them, your quarterly dividend income would have risen to $5947 by May 2008. For a period of 10 years, your quarterly dividend income would have increased by 578%. If you reinvested it though, your quarterly dividend income would have increased by 678%.


The dividend payout has largely remained under 50% over our study period with the exception of the short spike in 2001. A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings.



NOK does appear attractively valued with its low price/earnings multiple of 10 and low DPR as well as attractive yield at 3.80%. The current yield is pretty attractive based off historical standards. The current P/E is also attractive relative to what it has been over the past decade. One thing that bothers me however is that the dividend does fluctuate a lot and there is a larger possibility like in 2002 that the payment could be lowered if troubled times were to come again. Other than that Nokia is a great brand that should continue to do well in the future.

Disclosure: I do not own shares of NOK

7 comments:

  1. Maybe this is a stupid question, but when you analyze companies like this and your conclusion is largely favorable, why *don't* you own shares in them?

    ReplyDelete
  2. Mjukr,

    That's actually a very good question. But just because my conclusion is largely favorable, doesn't mean that the stock is a buy.
    Please check the last two sentences of the report:

    "One thing that bothers me however is that the dividend does fluctuate a lot and there is a larger possibility like in 2002 that the payment could be lowered if troubled times were to come again. Other than that Nokia is a great brand that should continue to do well in the future."

    I have found that there is limited data about the international dividend achievers like BP, DEO, NOK etc that I have analyzed. Another fact is that few international companies tend to stick to a consistent ot consistently increasing dividend strategy like most of the US companies do.

    ReplyDelete
  3. This is one of my Value Favourites and I think any company that is able to finance their own operations in this credit climate is one that will benefit. They are massive in emerging markets. Great analysis as always DGI!

    ReplyDelete
  4. Brad,

    NOK is surely on mu watchlist. I am pretty weak on the tech and international fronts for diversification purposes. But aren't you afraid that the term " emerging market" will soon become a "dirty" word, like it was 10 years ago?

    ReplyDelete
  5. Another great analysis, very timely as well--Nokia's price has been dropping in the past 6 months making the valuation a compelling buy--seems like investors have turned their backs on them as they move to other mobile tech companies with flashier offerings. I've followed this sector a bit and they're the only major player I see making inroads in developing and emerging markets. I can't imagine that Apple or Blackberry will be pushing it's product into sub-Saharan Africa anytime soon, so in the meantime it's to Nokia's advantage.

    ReplyDelete
  6. Maybe the dividend was lower because of the Currency Exchange Rate! The Dollar strong in 2002.

    ReplyDelete
  7. Anon,

    Actually NOK did cut its dividend in euros as well in 2002:

    http://www.nokia.com/A4126272

    Liana,

    Thanks for you comment. Nokia is big in emerging markets and it has been the market leader in the mobile phone market forever. It's pretty big in Europe..

    ReplyDelete

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