Why You Can’t Go Wrong With SKY PLC, BT Group plc, Talktalk Telecom Group PLC & KCOM Group PLC

SKY PLC (LON: SKY), BT Group plc (LON: BT.A), Talktalk Telecom Group PLC (LON: TALK) and KCOM Group PLC (LON: KCOM) would make a great addition to any portfolio.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

BT (LSE: BT-A), SKY (LSE: SKY) Talktalk Telecom (LSE: TALK) and KCOM (LSE: KCOM) are all defensive telecoms plays with a decent dividend yield.

This makes them perfect additions to almost any portfolio. But each company has its own key advantages and disadvantages, and which firm you chose is down to your own personal investment preference.   

Size is key

BT’s main advantage is the company’s size. It would be hard for BT to disappear overnight, as the company is an essential part of the UK’s telecommunication infrastructure. 

However, there is one thing that’s holding the company back — BT’s debt, specifically the company’s pension deficit, is one of the largest in the UK. 

BT’s pension deficit currently stands at around £7bn. The telecoms giant has committed itself to £2bn in scheme funding payments over the next three years. The company has a 16-year deficit reduction plan in place, but cash commitments to the scheme will hold back shareholder returns. 

Still, the company’s dividend yield of 3.2% looks safe for the time being. The payout is covered two-and-a-half times by earnings per share. 

Fending off the competition

SKY’s key advantage is also size. Moreover, the company’s purchase of exclusive rights to broadcast sports events, like the £4.2bn deal to broadcast the Premier League for three seasons, will pull customers towards the group.  

That being said, Sky’s dominance is being threatened by low-cost online streaming companies like Netflix. Sky will need to show that it can hold its own against these companies during the next few years.  

For the time being, however, Sky seems to be fending off the competition. Revenue has grown by a third since 2010 and sales are expected to expand a further 50% by 2016.

Sky’s dividend yield currently stands at 3.1% and the payout is covered 1.7 times by earnings per share. 

Small and mighty

Unlike Sky and BT, Talktalk Telecom doesn’t have the key advantage of size on its side. Luckily, this hasn’t hampered the company’s ambitions. 

According to current forecasts, at the end of this year, Talktalk’s pre-tax profit will have tripled since 2011. Excluding exceptional costs, Talktalk’s statutory profit after tax jumped 157.1% year on year last year to £72m. 

Current figures suggest that Talktalk’s pre-tax profit will jump 59% next year. After that, management believes that the company’s sales will settle into a long-term growth rate of 5% per annum. 

Talktalk currently supports a dividend yield of 3.6% and trades at a forward P/E of 25.9. The payout is set to rise around 10% per annum for the next three years. 

Income pick

KCOM’s greatest strength is the company’s cash generation, and most of this cash is returned to investors. At present, the company supports a dividend yield of 5.5%.

Unfortunately, while KCOM is an income champion, the company’s growth leaves much to be desired. Revenue has fallen by 13% during the past five years, although pre-tax profit has increased by 49%. KCOM has expanded into the higher-margin telecoms services market. 

Nevertheless, next year analysts believe that KCOM’s yield will hit 6.0%. The payout is currently covered one-and-a-half times by earnings per share.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK has recommended KCOM Group and Sky. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »

Investing Articles

Are HSBC shares a FTSE bargain? Here’s what the charts say!

There are plenty of dirt-cheap FTSE 100 banking stocks for investors to choose from today. Our writer Royston Wild believes…

Read more »

Three signposts pointing in different directions, with 'Buy' 'Sell' and 'Hold' on
Investing Articles

Just released: Share Advisor’s latest ‘Hold’ recommendation [PREMIUM PICKS]

In our Share Advisor newsletter service, we provide buy, sell, and hold guidance for our universe of recommendations.

Read more »