Finland based Nokia (NOK) is the world’s largest manufacturer of mobile telephones, with an incredible 33% of mobile device market share. At the current price of $10.19, the mobile phone giant looks appealing to income-seeking investors: it’s yielding 4.80% in dividends.
Nokia (NOK) started out as a paper, rubber and cables conglomerate in 1865 and since then morphed into the worldwide leader in mobile devices. Every day, more than 1.2 billion people connect to one another with a Nokia device, from mobile phones to advanced smart phones and high-performance mobile computers. Nokia's (NOK) NAVTEQ is a leader in comprehensive digital mapping and navigation services, while Nokia Siemens Networks provides equipment, services and solutions for communications networks globally. Nokia (NOK) has 123,553 employees, 37,020 of which work in R&D (approximately 30% of workforce), and sells its products in over 160 countries.
The company reported 2009 revenue of $50.5 billion, which was down 19% on 2008. The global recession caused people to buy fewer phones and also forced the company to lower prices on its higher end smart phones. The real concern though is on the net income figure, which fell to just over $1 billion from $4.9 billion in 2008. In 2007, Nokia (NOK) recorded net income of over $8 billion, so the drop off in 2009 really hit the company hard. The per share earnings figures tell the story: diluted earnings per share were $2.26 in 2007, dropped to $1.30 the next year, and came in at paltry $0.30 last year.
The dividend over the same time period has also decreased. The annual distribution was $0.60 in 2007, followed by $0.49 in 2008 and the same figure last year. The dividend is almost back at 2005 levels. Nokia (NOK), as a European company, only pays an annual dividend so investors need to bear this in mind.
The last few years have been terrible for Nokia (NOK). Increased competition chiefly from Apple (AAPL), which introduced the iPhone amongst many other gadgets, has seen people moving away from the company. There have also been problems in the smart phone space with many customers buying other brands which are just better products. Nokia (NOK) also failed to anticipate the huge downturn in demand that the global recession produced, and was forced to cut prices and sell a lot of inventory at a loss. Nokia (NOK) has also been involved in a number of high-profile acquisitions, the most recent of which was its $8.1 billion buyout of NAVTEQ, a map maker. On the plus side, the company has been buying back loads of shares, but as the price continues to decline this seems like a dead-end game.
The outlook for Nokia (NOK) is not good. Despite the enticing dividend yield, the stock is trading near its 12 month low and it’s likely the dividend is not going to go significantly higher any time soon. Apple is a ferocious competitor to deal with, and the general consensus is that Nokia (NOK) is more likely to lose market share from its high 33% than gain from this point. Whether or not the company’s best days are behind it is a difficult question to answer. Whether or not conservative dividend-seeking investors should pile into Nokia (NOK) for the 4% yield is, in my mind, quite easy to answer.
There are better, more secure options out there facing fewer headwinds.
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Comments
AronLiv
June 04, 2010
Apple isn't a competitor to Nokia. They are in a different league. Nokia's big advent was the ring-tone and they managed to sell an overpriced product into emerging markets for years. That's true no more. Nokia has become a classic dividend trap stock as it winds its way to 0.
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wally
June 04, 2010
I believe you are wrong 100%! Nokia best days are still ahead! the NOkia N8 coming up soon is the phone to have and not Icrap, HTC... You all bashers need to stop bashing the company and pumping Apple! Icrap is nothing but a dumm phone! can you multi-task on Icrap? No u cant! I own the Nokia N900 and it is by far the most "smart" smartphone out there! try it and compare to Icrap then come and see me! I got my dividend last week.... did you get yours?!!! Apple is nothing but a pumped company/stock! past Q Apple market share was down comparing the Q before....
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Trond
June 04, 2010
Sad to see so many misunderstandings regarding this company. In many ways one of the biggest tech companies in the world, with increasing (not losing) smartphone market share over the past year, selling 500 million phones per year, and a lot of innovative stuff coming up over the next year (Symbian^3 and Symbian^4, Meego etc).
Contrary to what many seem to believe, Nokia has a very high gross profit on their devices, similarly as Apple in total on their products. The difference is just that Nokia reinvests much of this into R&D (infrastructure/services) unlike its competitors, so overall net profit looks quite slim in comparison to for example Apple.
Nokiaôs market cap is now only 15% that of Apple.
It must be pointed out that most companies have cut their dividends since 2007 after the economic crisis hit. Nokia has cut much less than the others, and that it hasnôt cut all that much and are now giving out 5% dividend, is just one of many symptoms this stock is terribly undervalued. Which tech companies now give out a higher dividend yield than in 2008? Nokia also has $12B in cash. With the current market cap of only $37B, that would be sufficient to give out 5% dividend for the next 7 years. Apple could only do the same for 2-3 years with their current cash pile.
I never would have expected a company like Nokia to go up 7 times over a 2 year period like RIM did from 2006 to 2008. Now I think it is perfectly possible. That would make Nokia about the same size as Apple in terms of market cap. Yes it would probably be quite overvalued if that happens. But in this business things goes from being undervalued to being overvalued.
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Richardo
June 07, 2010
@Trond. You are right not to expect Nokia to go up 7x and be the same size as Apple in 2 years. It is more likely to go to 1/7th the current valuation in 2 years and by the same size as its peers (Ericcson, Motorola, Lucent, etc).
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bek
June 08, 2010
Your analysis is profoundly wrong :
1/ Nokia and Apple are not direct competitors. Apple is on a premium strategy, Nokia is on a volume strategy. It is like comparing Mercedes or BMW with Renault or Fiat.
2/ Because Apple is on a premium strategy, it can not goes much further in term of market share. The iPhone will remain a cash cow, but it is not going to own the market.
3/ Nokia has a lot of innovation in the pipes. For being software ingenieer, I can tell their software strategy makes a lot of a sense : MeeGo, symbian^4, Qt are the names that paves the way of Nokia's come back, starting at the end of this year.
4/ With the Smartphone market starting to be more mainstream and more mature, the competition is going to moves from feature to price. And there nobody will be able to compete with Nokia.
So in my opinion the outlook is far better for Nokia than for Apple...
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steve
October 19, 2016
I am reading these comments 6 years lather ,and how wrong many ,or most ,of the comments are.
Nok went to being single digit stock and appl went to 700$$$ and than it split 7:1. So much for the experts out there that we all try to use or "pick their brains" so to speak for our own financial decisions.
NOK took over ALU ,now we have Alcatel,Lucent and Nokia as one Co. and the stock is still single digit ,if not for the divident it would be a$1 a share.Go figure.
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