Morningstar rates Spark as one of the top 8 dividend stocks:Moat...

Morningstar rates Spark as one of the top 8 dividend stocks:

• Moat rating: Narrow
• Forward yield: 8.2%
• Star rating: ★★★★

Spark New Zealand has a strong position in the New Zealand telecoms industry and has the infrastructure to offer a diverse range of products. Spark generates over 40% of group revenue from the mobile telephony business, around 19% from fixed line broadband and the rest from IT products and services across several areas like cloud, data centres and managed data and networks.

Spark's narrow moat rating is supported by cost advantage and economies of scale in a relatively small market. Spark is the equal-largest player in mobile with over 40% service revenue market share. The dominant market positions of Spark and Vodafone may make it difficult for new players to enter the market and establish necessary scale.

Given the small New Zealand market, we believe there is a low risk that a new player will foot the cost of entering the market as an infrastructure network operator. Further, our Spark analyst Brian Han thinks that Vodafone’s private equity ownership may usher in a new era of more rational competition on pricing.

Han thinks Spark can pay just above $0.25 per share out in dividends in fiscal 2025, representing a forward yield of over 8%. He also thinks the payout could grow by a whisker under 2% in fiscal 2026. At a recent price of $3.10 per share, Spark traded around 24% below Han’s Fair Value estimate.