Asia telecoms lure investors with payouts

By Jennifer Tan

SINGAPORE (Reuters) - Investors look set to pump more money into Asian telecoms stocks, drawn by the sector's high cash payouts and stable earnings prospects, as they seek refuge from turmoil in financial markets, sky-high inflation and a slowing U.S. economy.

Compared with technology, banking and consumer stocks, Asian telecoms carriers are seen offering shelter from the subprime storm, ranking among the top five sectors in terms of yield, returns and earnings growth this year.

Favourite stocks include Taiwan's largest operator Chunghwa Telecom Co (2412.TW: Quote, Profile, Research) and South Korea's second-ranked mobile firm KTF Corp (032390.KS: Quote, Profile, Research), which are relatively cheap, generate robust cashflows and offer dividend yields above 5 percent.

Investors are more wary of carriers in China, India and Indonesia. These firms offer stronger growth potential, thanks to their rapidly expanding subscriber bases, but escalating price competition and higher regulatory risks are a concern.

"When markets are volatile, sectors that have high yield and generate a lot of cashflow and have fairly certain earnings growth will be in favour, and the telco sector fits that pretty well -- telcos are the new utility stocks," said Michael Kerley, a London-based fund manager with Henderson Global Investors.

"I expect markets to stay volatile, and people tend to be more willing to pay for certainty when markets are volatile, so telcos will remain attractive," he said, adding that this situation could last another six months or longer.

Asia's telecoms sector is ranked a top performer in terms of dividend yield, earnings per share (EPS) growth and return on equity (ROE) ratios, in comparison with other sectors like finance, raw materials, property, healthcare and retail.

Return on equity measures how much profit a company generates with the money that shareholders have invested. A business with a high ROE is likely to be one that is able to generate cash internally.