Telecom NZ’s juicy 7% dividend

Telecom Corporation of New Zealand (ASX:TEL) is paying a juicy 7.1%, partly franked dividend, for those investors looking for yield.

Telecom has reported a NZ$236 million profit for the 2013 financial year, or earnings per share of NZ 13 cents, but is paying a NZ 16 cent dividend, partly franked, and expects to pay a similar amount in 2014. The company saw revenues of NZ$4.2 billion in 2013, a fall of 8% from the previous year, mainly due to a decline in fixed line revenues – something Telstra Corporation (ASX:TLS) in Australia is also facing.

Telecom is mainly a retail services provider in New Zealand, and has 900,000 retail and small business fixed broadband customers, as well as more than 1.8 million mobile customers in New Zealand, along with 70 wholesale customers.

The company is not just active in New Zealand, but also owns AAPT and other telco assets in Australia. What may surprise many, is that AAPT owns 11,000kms of interstate fibre networks, as well as data centres in the major capital cities. AAPT primarily focuses on business customers in Australia, with competition from Telstra and Singapore Telecommunications’ (ASX:SGT) subsidiary Optus proving too hot in the retail sector. AAPT boasts more than 5,000 business and 300 wholesale customers in Australia.

Telecom also holds a 50% share of the Southern Cross Group, which owns and operates the Southern Cross trans-pacific submarine cable, linking Australia and New Zealand to the west coast of the United States. Customers, such as Vocus Communications (ASX:VOC) lease space on the cable, which is then on-sold to other customers.

Since splitting itself into Telecom (retail) and Chorus (ASX:CNU) (network services), Telecom has been forced to revolutionise its business. This process is still ongoing, and while the company is rolling out new services, such as a 4G network in New Zealand, Telecom faces significant competition on its home turf, as well as in Australia.

Foolish takeaway

Telecom may see a number of years where it struggles to grow earnings materially. But with some significant assets in both Australia and New Zealand, and paying a 7% dividend, investors may want to put Telecom on their watchlist.

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Motley Fool writer/analyst Mike King owns shares in Telstra and Vocus.

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