Nomura Securities on European Strategy: Upgrading Telecoms with Strong Dividends

July 9, 2012 10:08 AM EDT
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Nomura Securities on European Strategy: Upgrading Telecoms

Analyst, Inigo Fraser-Jenkins, said, "While we recognize that investing in European equities is at present made more difficult by the level of policy uncertainty that prevails, we think that buying highly defensive strategies such as ‘quality’ or ‘low volatility’ is too expensive and we could not advocate such a trade. However, there are other forms of strategy that may appeal to those who cannot buy into mean reversion that are based on income/dividend strategies, especially where those dividends are well covered by cash flows. The Telecoms sector has the highest yield of any sector at present. These dividends are also well covered by cash generation so we do not see a risk to the dividend of the sector. We are upgrading our recommendation on the sector to Neutral. We are not going overweight as the sector still has structural issues, not least persistent price deflation."

Noted dividend paying telecom stocks included: Telefonica (NYSE: TEF), Telecom Italia (NYSE: TI), Portugal Telecom (NYSE: PT), France Telecom (NYSE: FTE) and Koninklijke Philips (NYSE: PHG) affiliate KPN.

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