New Zealand's telecom infrastructure company Chorus Ltd (ASX: CNU) yesterday reported a static earnings result for the 12 months to 30 June 2016, but rewarded investors with the return of a full year dividend.
Both revenue and profit were flat as a result of regulated pricing issues the company faced earlier in the year. Here are the important points to be aware of:
- Revenue for the year was flat at NZ$1 billion
- Net Profit was also flat at NZ$91 million
- The company has NZ$102 million in cash, up from NZ$80 million
- An unfranked dividend of (NZ$) 14cps was declared (including supplementary dividend for non-New Zealand residents), compared to none for the previous year. This takes the 12 month dividend to (NZ$) 23.41cps, a yield of 5%
Chorus Ltd vs Telstra Corporation Ltd
Chorus differs from Telstra Corporation Ltd (ASX: TLS) in so far as it doesn't sell direct to retail customers, but has similar roots in fixed copper networks. Chorus then is very much like a regulated utility, allowing internet service providers (ISPs) to connect to its network, while prices the company can charge for its copper network are capped by government regulation.
But given the growing demand for high-speed data and the consistent earnings, how does Chorus stack-up compared to Telstra for dividend investors looking for income?
| Chorus Ltd | Telstra Corporation Ltd | |
| Dividend Yield |
5% |
5.8% |
| EV/EBITDA |
5 |
7 |
At current share prices Telstra's dividend yield trumps that of Chorus, but importantly it also comes fully franked, while Chorus' dividend yield includes the benefit of a supplementary dividend for non-New Zealand residents.
Valuation wise Chorus looks more compelling than Telstra with an EV/EBITDA ratio (Enterprise Value/Earnings Before Interest, Tax, Depreciation and Amortisation) of 5 compared to Telstra's 7, but this is likely justified because Chorus is more constrained by regulation.
Looking towards FY17 Chorus is forecasting a dividend of 21cps, a slight increase on FY16, assuming no material adverse changes in circumstances or outlook. Telstra meanwhile is forecasting "low to mid-single digit EBITDA growth" in FY17 and looks likely to sustain the existing dividend, as well as returning capital to shareholders with a $1.5 billion share buy-back.
Foolish takeaway
Although I think Chorus will continue to grow over the next five years as New Zealand's demand for data grows, at current prices I prefer the benefits of Telstra's fully-franked dividend as well as the lower regulatory risk in years ahead.
