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How to buy Telefonica stocks in 2022

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Telefonica (TEF)
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Author: Mircea Vasiu Updated: July 31, 2022

Telefonica is a Spanish company based in Madrid that operates in the communication services sector. It is an integrated telecommunication company with operations in Europe and Latin America.

Telefonica offers products and services such as mobile data, fixed wireless, ISDN accesses, or public telephone services. It also provides Internet and broadband multimedia services, as well as wholesale services for telecommunication operators.

In this article, we will look at Telefonica's history and stock price performance, as well as its business and financial performance. The aim is to guide you on how you can buy Telefonica stock with confidence and introduce you to the key fundamental aspects of its business that might be of interest before buying Telefonica shares.

How to Buy TEF Stocks in 5 Easy Steps

  1. 1
    Visit eToro through the link below and sign up by entering your details in the required fields.
  2. 2
    Provide all your personal data and fill out a basic questionnaire for informational purposes.
  3. 3
    Click 'Deposit', choose your favourite payment method and follow the instructions to fund your account.
  4. 4
    Search for your favourite stock and see the main stats. Once you're ready to invest, click on 'Trade'.
  5. 5
    Enter the amount you want to invest and configure your trade to buy the stock.

Everything You Need To Know About Telefonica

The following section of the article provides insights into the company's history, its strategy, how it makes money, and how Telefonica's stock price has performed in recent years.

Telefonica History

Telefonica was founded in 1924 in Madrid, Spain. Nowadays, it has become one of the largest telecommunications service providers in the world, serving over 345 million customers in Europe and Latin America. It operates in 14 countries and employs over 112,000 people.

In 1987, Telefonica was listed on the New York Stock Exchange, thus gaining access to American capital. It entered Peru in 1994 and has been expanding its services in Latin America ever since.

The year 2006 marked the acquisition of O2, a company that gave it access to markets such as the United Kingdom, Germany, and Ireland. As a result, its operations grew both in Europe and Latin America. Currently, it is the number one fibre network provider in both regions, with 1.6 million km of fibre. It also offers 5G technology in the United Kingdom, Brazil, Germany, and Spain.

The company entered a joint venture with Allianz in 2020 to deploy fibre in Germany. In 2021, Telefonica and Liberty Media signed an agreement to merge their U.K. companies to obtain advantages from synergies.

What Is Telefonica's Strategy?

In its almost one hundred years of history, Telefonica has strived to connect people. It is a publicly-listed company, and its shares can be traded on the Spanish stock market, the New York Stock Exchange, and Lima stock exchange, Peru.

Besides its own activities in the European and Latin American markets, Telefonica offers its services in over 170 countries via strategic partner agreements. Apart from being the largest fibre network operator in Europe and Latin America, Telefonica is the leader in network virtualisation, too. Its 4G services have a coverage of 99% in Europe, and now it works on expanding its 5G coverage.

Telefonica has built a sustainable business model and invests in helping society to thrive. It is also building a greener future by reducing its carbon print and investing to reach its net zero emissions target by 2025.

How Does Telefonica Make Money?

Telefonica provides telecommunication services. Its operations expanded as the telecommunication industry evolved over time. Besides being a mobile data provider, Telefonica also provides video and TV services, IoT products, cloud computing services, advertising, big data services, and others. Simply put, it is a company offering communication, information, and entertainment solutions, under brands such as Movistar, Vivo, or O2.

How Has Telefonica Performed in Recent Years?

Telefonica saw its stock price decline in the last few years. The price met stiff resistance in the $30 area and was rejected strongly. It now trades close to $5, recovering from the COVID-19 market decline.

The 2008-2009 Great Financial Crisis marks the beginning of the decline in the Telefonica stock price. Long-term investors, however, are aware that the company invested in a new vision, taking measures that hurt revenues in the short term. Therefore, the decline in the stock price may just be an opportunity to buy Telefonica stocks at a steep discount.

Telefonica Fundamental Analysis

Unlike technical analysis, which traders use to look for patterns in share price movements, fundamental analysis is what investors use to determine the underlying health and intrinsic value of a company. When you read about fundamental analysis, you’ll see terms such as P/E ratio, revenue, earnings, earnings-per-share, dividend yield, and cash flow. So, let’s look at what those terms mean.

Here are some fundamental aspects to consider before buying Telefonica stocks, such as the company's revenue, the earnings-per-share (EPS), the P/E ratio, the cash flow, and the dividend yield.

Telefonica's Revenue

A company's income statement starts from its revenue. Revenue shows how much the company makes from selling its products and services.

Telefonica's revenue in 2021 is estimated to reach €38 billion and is forecasted to decline slightly by 2023. Telefonica plans to gradually reduce its exposure to Latin America and their plan explains the decline in revenue. Despite declining revenues, the company's net profit increased by 38.5% in 2020 compared to the same period a year before.

Telefonica’s Earnings-per-Share

The earnings-per-share show how much the company makes per one share after the cost of doing business is deducted from revenue. The EPS are listed at the bottom of the income statement, and for this reason, the metric is also called the "bottom line". Telefonica's EPS are forecasted to reach €0.62 in 2021, declining in the years ahead.

Telefonica’s P/E Ratio

The P/E ratio or the price/earnings ratio shows the current market price of one Telefonica share divided by the earnings per share. The higher the P/E ratio is, the more unattractive the current stock price is because it means that the company's shares trade at many multiples compared to how much money it is making today.

Telefonica's P/E ratio for 2021 is seen at 6.63, projected to rise slightly to 10.22 by 2023 and then start declining to 9.94 in 2024 and 8.36 in 2025.

Telefonica’s Dividend Yield

The dividend yield is a financial ratio that measures the annual value of dividends a company pays relative to the share price of its stock. Dividend per share is the company’s total annual dividend payment, divided by the total number of shares outstanding. A company with a high dividend yield pays a substantial share of its profits in the form of dividends

One of the benefits of holding Telefonica stocks is that Telefonica is a dividend-paying company. Its dividend yield is estimated at 7.16% in 2021, and it shows the percentage of the company's share price that it pays out as a dividend each year.

Telefonica has a long history of paying dividends, and the five-year growth rate is slightly above 10%. The dividend is paid semiannually.

Telefonica’s Cash Flow

Telefonica runs a strong free cash flow generating business. The free cash flow represents the amount of cash left after the company has covered all of its costs. A strong free cash flow position is desirable because it helps finance growth, invest in new products and services, acquire rivals, or reduce debt.

Truthfully, Telefonica's net debt reduction in the past five years was driven by strong free cash flow generation. Since 2016, the net debt has declined by approximately €17 billion, most of it coming from free cash flow generation. Therefore, reducing the net debt organically is a way of using the free cash flow.

Why Buy Telefonica Stocks?

Looking at a few fundamental metrics, Telefonica might not look like a company to invest in. Even its stock price declined significantly in the last few years.

Yet, here are four reasons to consider that might make you want to buy Telefonica stocks:

  • Sustainable and attractive dividend;
  • Unique diversification within the industry;
  • Strong free cash flow position;
  • Sustainable business model.

Expert Tip on Buying Telefonica Stock

Investors value telecommunication companies for their dividend-paying policies. When a company is diversified within the industry, such as Telefonica, the company becomes even more attractive. The stock price is cheap, judging by some fundamental metrics such as the low P/E ratio, and the business generates strong free cash flows. In addition, Telefonica's management knows how to approach different markets and technologies and constantly adapt based on its past evolution. For example, in 2021, the company signed a partnership with Oracle to enter the cloud services business.
- Mircea Vasiu
Buy Telefonica Stocks Today!

Things to Consider Before Buying Telefonica Stock

Here are some things to consider before buying Telefonica stock.

1. Understand the Company

Make sure you know the company well before deciding to invest. Do your due diligence and find out the line of business, the industry trends, the competition, and assess its viability. Find out if the company is dependent on any given market or any given product and if there is the danger of losing market share to competitors in the future.

2. Understand the Basics of Investing

It helps to know at least the basics of investing before deciding to invest in a company. Diversification is key to long-term portfolio protection as it helps weather the account during down markets. However, too much diversification keeps the portfolio from growing, so the investor should find a balance. Also, it is best to understand how orders are executed and the options available to you in executing an order – at the market or predefined levels using pending orders.

3. Carefully Choose Your Broker

One of the most important steps in the investing process is to find the right broker. The broker is your partner in the investing journey. You want it to be regulated by a financial authority, to offer negative balance protection, to segregate the customers' funds from the funds needed to run the everyday business, to have a solid reputation and decent customer service, to name just a few things that make a good broker.

4. Decide How Much You Want to Invest

The amount to be invested in any stock depends on the risk appetite and money management. Instead of betting the entire portfolio on one company, the investor might be better off spreading the amount over different stocks.

For example, instead of investing $10,000 in one single stock, you might be better off investing $1,000 in ten different stocks. Diversification is key to long-term investing and diversification benefits can be obtained by adding uncorrelated assets to the portfolio. For example, one can diversify within the industry or simply spread the risk by investing in companies from other industries and sectors too.

5. Decide on a Goal for Your Investment

Another thing to consider before investing is the goal you want to achieve. Some investors do it for the sake of proving some of their ideas about the overall economy or a specific market sector. For example, a strong believer in climate change might be tempted to invest in the shares of an electric vehicles producer or a company that manufactures components for the electric grid.

Other investors like the product and, thus, are big fans of the company. For instance, many iPhone users satisfied by their user experience may decide to invest in the company's shares simply because they are familiar with its products and believe there is strong growth potential.

Finally, some other investors wish to build a portfolio for retirement, hoping to cover much or all of their expenses from dividend payments. Whatever the reason to invest, make sure you know ahead why you do it and what will make you change your mind.

The Bottom Line on Buying Telefonica Stocks

Telefonica is a telecommunication company that pays a regular dividend. It is a company that directly serves customers in Europe and Latin America, and it has a presence in 170 countries via a strong network of strategic partner agreements. Most of its revenue comes from Spain, and it is a leader in the ESG developments in the industry. It aims at reaching net zero emissions by 2025. The stock price is relatively cheap from a fundamental analysis perspective, and the steady dividend makes it attractive for investment.

Those ready to invest in Telefonica stocks should first choose the broker to partner with. After finding the Telefonica ticker in the broker's offering, make sure to shortlist it and move it in the watchlist or favourites section, should the broker provide one. Finally, decide how and when to invest. One can invest immediately, instructing the broker to buy Telefonica stocks at market price, or may use pending orders. Pending orders are used by investors willing to buy Telefonica stocks only if and when the price reaches certain levels. For example, if the stock price is in a tight range for many months, it may be wise to wait for the price to break out of the range before investing. For this, a pending buy stop order instructs the brokerage house to buy the stocks from a higher level than the current one.

If you are not ready to invest yet, feel free to reach out for our other educational materials on our website. Investing seems difficult if you are not familiar with fundamental analysis and its purpose, calculating the intrinsic value of a company's stock price, and so on. Therefore, continuous education helps build sufficient knowledge and confidence to start investing soon.

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Frequently Asked Questions

  1. Three major companies issue credit ratings in the financial industry – Moody's, Standard & Poors, and Fitch. Telefonica is rated as investment trade on all three, having a stable outlook and rated BBB- at Standard and Poors, BBB at Fitch, and Baa3 at Moody's. Investment grade means that there is high credit quality and low credit risk.

  2. No. Telefonica operates in five main regions – Spain, Germany, Brazil, Hispanic America, and the United Kingdom. Up to 29% of its revenues come from Spain, where its leading brand, Movistar, is a dominant player in the industry. Germany is responsible for generating 17% of Telefonica's revenues, while Brazil brings in another 17%.

  3. Dividend safety refers to the company's ability to continue paying the current dividend amount. Telefonica offers an attractive and sustainable dividend, and it has been paying one for decades, either annually or semiannually. It has a double-digit five-year dividend growth rate of 10.41% and a payout ratio of 49.23%.

  4. Telefonica is dedicated to delivering long-term stakeholder value responsibly. It is building a greener future by leading ESG efforts in the industry. The company issued the first-ever green bond in the sector and the first-ever hybrid green bond a couple of years ago. Approximately 90% of its energy used is renewable, and it has a goal of reaching zero emissions by 2025.

  5. Telefonica started to execute its new vision as to where the company is heading in the years ahead. One of the points of its plan is to gradually reduce exposure to Latin America and focus more on four key markets – Spain, Brazil, Germany, and the United Kingdom. It is also investing heavily in new technologies through the launch of its Telefonica Tech arm, and these investments will pay off later.

  6. Telefonica is one of the top 50 companies ranked by the size of their research and development investments. In 2020 alone, the company invested close to €1 billion in R&D projects, owning 477 technological property rights assets. It also ventured into third-party investments, with over €2 billion invested in hundreds of startups in the industry.