Shalom, Partner

04/06/2010 10:32 am EST


Carla Pasternak

Editor, The Income Investor

Israeli telecom Partner Communications is ringing up rich returns for shareholders, writes Carla Pasternak in High-Yield International.

Partner Communications (Nasdaq: PTNR) is a leading telecom provider in Israel with about a one-third market share. The company offers cellular, fixed-line phone, and Internet services and is the second largest wireless provider in the country.

The company has a stated dividend policy of paying out 80% of net income in dividends, which are typically paid quarterly. However, Partner [also paid] a massive special cash dividend of $2.39 per ADR as part of a company effort, along with share buybacks, to increase shareholder value.

Including this payout, Partner has distributed $3.68 per ADR over the past 12 months for a staggering 16.8% trailing yield at today's price ($3.68/$21.94). [Shares closed at $22.35 on the Nasdaq Monday—Editor.]

The company also declared the next regular quarterly dividend at roughly $0.50 per share, depending on currency adjustments, payable in early April. At this current rate, not counting the $2.39 special dividend or any future special dividends, Partner is paying about $2 in dividends per year for a still healthy 9% forward yield at today's price ($2.00/$21.94).

Israel has a 25% withholding tax on dividends, which can be offset against other taxes and retrieved when you file taxes. Dividend payments are converted to US dollars from NIS, so there is currency risk to the distributions. In US dollars, the company earned $1.95 per share and paid out $1.63 in dividends in 2009 for a payout ratio of 83%.

For the full year 2009, total revenues fell 3.5% to NIS $6.1 billion ($1.6 billion) and net income dropped 4.8% to NIS $1.1 billion ($302 million) versus 2008. The company attributed the weaker performance to the tough economy and higher costs associated with a recent upgrade in its fixed-line services.

The decreased earnings were mitigated by several factors. Business fixed-line revenues were up 188% in 2009 while cellular content and data revenues were up 6.8%, and text messaging revenues grew 16% year-over-year. The company added 144,000 new cell subscribers last year, taking the total to three million, which prompted a 3.4% increase in total minutes charged for the year.

The company has said that cuts implemented in 2009 to reduce sales and marketing costs, combined with an improving economy, should drive earnings higher in 2010.

In fact, these conditions, along with added subscribers, lifted year-over-year revenue and profits higher already in the quarter ending December 31st. Additionally, data and content revenues should continue to grow as all three major Israeli phone companies began offering the iPhone and its accompanying data services in December 2009.

A rising subscriber base, increased data and content revenue, and an improving economy should boost earnings in 2010 and possibly add capital appreciation to a strong double-digit yield.

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