Orange Telecom (ORAN) is a French telecommunications provider and a Top Pick for income investors in 2023, suggests Philip MacKellar, contributing editor to Contra the Heard.
The stock's price fell in 2022. The company was impacted by slowing economic activity in Europe, valuation compression among telecoms, and a strong US Dollar which dragged the NYSE-listed ADR (American Depositary Receipt) lower.
Despite the lackluster performance, the dividend yield has compensated for the downdraft and the company is well positioned heading into 2023.
Its French business is complemented by operations in Spain, Poland, other European countries, and nations throughout the Middle East and Africa. It also provides cybersecurity, cloud storage, and even banking services. The shares are listed in New York under the symbol ORAN and in Paris under the symbol ORA.
As of mid-December 2022, the yield was approximately 7.5% and the trailing-twelve-month payout ratio was 49%. This represents an attractive income-oriented opportunity for investors, and the payout has the potential to be increased as well. A dividend increase is not our base case for this stock, but a 7.5% dividend from one of Europe’s largest telecommunication providers is nothing to scoff at regardless.
In addition to the distribution, it is possible owners will see capital appreciation in 2023, as the corporation’s valuations are currently low and could move higher. Moreover, global equity markets are coming off a bad year, the economic situation in Europe could stabilize, and the Euro could continue to rebound versus the US Dollar.
The stock could get a final boost if it is able to turn around its underperforming Spanish division. This market is very competitive, which has hurt Orange’s business there. To remedy the situation, Orange and MásMóvil have signed an agreement to combine their operations in this country.
The transaction is based on an enterprise value of €18.6 billion — €7.8 billion for Orange and €10.9 billion for MásMóvil. Though the merger is subject to approval from antitrust authorities and is not expected until the second half of 2023, passage of the deal would cut the number of competitors in Spain from four to three and help Orange in the process.
Orange’s outlook is strong, but there are two caveats here for income-oriented investors. First, the distribution is not paid out monthly or even quarterly, which could be an issue for those needing regular payments, and second, there are ADR fees associated with the dividend. These cautions aside, Orange represents an excellent income-oriented opportunity for 2023.
