Familiarity bias is one of the most common traits that affects investors. In an era when we can buy shares on the NASDAQ or New York Stock Exchange as simply as we can buy a share on the ASX through an online stock broker, there has to be a reason why so few of us own overseas shares.
The reason is that as investors, and as humans, we are trained to seek familiarity and shun uncertainty. That translates through to investing decisions, with investors more likely to buy businesses they know or are familiar with.
However, in some instances, we can buy shares of overseas businesses because they are dual listed, with one listing on the Australian Stock Exchange. That is the case for Spark New Zealand Ltd (ASX: SPK) which shares many of the characteristics that have made Telstra Corporation Ltd (ASX: TLS) a portfolio staple for thousands.
So is it worth buying?
Beating expectations
The recent reporting season saw Spark New Zealand do something rare for this year: it surprised the investment community on the upside. The company was able to beat full year expectations, while also declaring that the 2016 dividend would be higher than this year. It also delivered a present to shareholders in the form of an unexpected special dividend payment.
The result was driven by stronger than expected growth in mobile revenues as well as from the IT division. It was also able to compete more effectively in its home market and wrest market share in mobile away from aggressive competitors including Vodafone New Zealand.
Strength in numbers
The really eye-catching figure for Spark New Zealand was the cash flow, which enabled the company to begin a $100 million dollar share buyback and increase dividends at the same time. Share buybacks are good for shareholders because they decrease the number of shares on issue, and as a result, capital gains and dividend payouts to shareholders are magnified. Put another way, it is similar to dividing the pie (the profits) up among a smaller amount of people, with each person getting a larger slice as a result.
End of headwinds
Another major win for the company going forward is the completion of a comprehensive end to end rebrand of the company. This public facing rebranding was also accompanied by asset sales and divestments so that Spark could focus on winning market share and spend in the growth categories of mobile and data, a strategy that has now been proven to be working.
In addition, the major revenue declines from a shrinking fixed-line telephone base have largely abated, with growth in other segments swamping the now incremental decreases in traditional land line services.
Dual appeal
Spark is a rare stock that offers both solid dividends and growth appeal. It is currently trading on a yield of 6.25%, which is tipped to rise in the coming year, and compares favourably to the payout of Telstra.
It also has more growth levers to pull as expenses fall and mobile subscriptions grow, which should also provide support for share price growth in the next twelve months.
For those looking for a stable dividend stock with growth prospects and many of the features that have previously made Telstra a great investment, Spark New Zealand could be a worthy addition to the portfolio.
