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11/23/2010 3:40 pm EST


Carla Pasternak

Editor, The Income Investor

Thailand’s largest wireless carrier delivers a very friendly yield, writes Carla Pasternak in High-Yield International.

Advanced Info Service (OTC: AVIFY) is Thailand's largest mobile operator, with over a 42% share of the country's cell phone market at the end of 2009. Its network supports more than 28 million subscribers in a total population of around 67 million.

The company's policy is to pay out not less than 40% of after-tax profits to shareholders and to provide special dividends when it expects to have excess liquidity with no major investment obligations.

Over the past six years, the company has paid out a steady Thai baht (THB) 6.30 per share annually, and this May it also paid a special THB5.00 per share. Total payments in 2010 translated to $0.35 per American share, providing a gargantuan trailing yield of 11.4%. [Based on a price of $3.08 per ADR, which closed at $3.06—Editor.).

Excluding the special payment of $0.15, the shares yield a still nice 6.5%. For 2009, the regular dividend of THB6.30 per share represented 109% of earnings per share but only 64% of free cash flow.

Despite being held steady, regular dividends have grown about 9% over the past year for US investors, in line with the stronger Thai baht. For US investors, there is a 10% withholding tax on dividends, which should qualify for the reduced dividend tax rate in the US.

AIS’ revenues and earnings have held steady, growing 2% to 4% annually over the past four years. Growth has been driven by an increasing number of subscribers in Thailand's cellular market, from 30.1 million (49% of the population) in 2005 to 66.9 million (100% of the population) in 2009.

Data services, which are supported by smartphones in addition to voice services, are the fastest-growing segment of the company. Like other state-supported telecoms with a dominant share of the market, AIS generates strong profit margins and free cash flow.

At about 15 times trailing earnings, the shares are trading in line with the Standard & Poor’s 500 and appear reasonably valued. However, considering they carry a yield of more than three times that of the US benchmark (even after excluding the special payout), the shares are attractively priced. Moreover, price to cash flow of just seven times compares to almost nine times for the S&P 500.

If you're looking for a remarkably reliable dividend and a steady share price with moderate growth potential, Advanced Info might be just the ticket.

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