Elop hands up

Nokia stock is falling on news that the company will not pay its hefty dividend. Nokia was paying a dividend that yielded about 4%.

Despite the elimination of a stream of cash to shareholders, the dividend cut is good for Nokia because its cash stood only at 4.36 billion euros at the end of December. Even though this was an increase of 796 million euros from the end of September, the cash level at Nokia is dwarfed against $137 billion cash at Apple. The savings from the dividend cut will allow Nokia to invest more in its business and give it more time to complete the turn around. All three major credit rating firms have already cut Nokia’s debt rating to junk.

Nokia has been turning around slowly after its gutsy decision to abandon its in-house smartphone platform and support Microsoft Office Phone operating system. Nokia Lumia series is successfully competing with both Apple iPhones and Google Android based devices.

The stock has moved up strongly since I published in Forbes, Proof Positive Of Nokia Turnaround With 4.4 Million Lumia Phones Sold. It is important to note that results mentioned in the prior piece were preliminary. Nokia has just released its earnings report. The results are in line with the preliminary results described in the prior piece.

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Nokia CEO Stephen Elop said,

We are very encouraged that our team’s execution against our business strategy has started to translate into financial results. Most notably we are pleased that Nokia Group reached underlying operating profitability in the fourth quarter and for the full year 2012.

While the first half of 2012 was difficult for Nokia Group, in Q4 2012 we strengthened our financial position, improved our underlying operating margin in Devices & Services, introduced the HERE brand to expand our mapping and location experiences, and drove record profitability in Nokia Siemens Networks.

In my analysis, the fall in the stock on the dividend cut is likely to be short lived. Most of the investor base of Nokia that was interested in dividends has already fled the stock. Most investors figured that the dividend was not sustainable.

Based on this reasoning, I pushed the trigger to buy the stock at $4.08 in the premarket. I also recommended to my subscribers who were not holding Nokia to start a small position. The reason to keep the position small is because in my analysis Nokia is a speculative stock and we have firm guidelines for speculative stock that limit the position size. The concept is to take small positions in a large number of speculative stocks to reduce overall portfolio risk.

My longer term perspective has not changed since I wrote in Forbes Nokia Is A $2 Call Option On Microsoft Windows Phone on July 16, 2012 when the stock was trading at $1.80. There is no change in my target from July 16 th .

About Me: I am an engineer and nuclear physicist by background. I founded two Inc. 500 companies, and have been involved in over 50 entrepreneurial ventures. I am the chief investment officer at The Arora Report, which publishes four newsletters to help investors profit from change. Write me: Nigam@TheAroraReport.com . Follow me here . Subscribers to The Arora Report are long Apple from $131 and have already taken partial profits on 90% of the position. Subscribers are also long Nokia and Microsoft.