Which sectors look most attractive?

We like and own Telefonica [TEF], which is based in Spain, but is one of the world's leading telecom companies. It has significant operations not only in Spain but across Europe, and a good business in Latin America. It also has a good mix of fixed and wireless assets. The stock has been under pressure because of concerns about the slowdown in the Spanish economy. One area that bears mention, however, is the company's exposure in Venezuela. This is a profitable business, but with obvious political and currency risk. But Telefonica management is one of the best in the industry, with a consistent track record of growing the dividend. The current yield exceeds 6%. Moderate-single- digit growth in net income, together with share buybacks, should enable the high- yielding shares to produce a solid total return in the next several years.

will increase dividends again next year

Among the stocks that Bolton favors are Spain's Telefonica (TEF), which has a 7% 2009 yield and 3.8 times dividend cover, and BP, the British oil producer, which has a 6.9% yield and 2.8 times cover. Falling oil prices are an issue for BP, but he thinks it will try to avoid a dividend cut, owing to bad memories of a prior cut in the 1990s.

From a recent Mad Money show: "I like a high-yielding telco play. I think that TEF is a good one."

The Citigroup strategist has also conducted an admittedly oversimplified but illuminating valuation experiment. At some firms, if dividends were ended and cash flow directed to stock buybacks with only maintenance capital expenditure, then some theoretically could buy all their shares outstanding relatively quickly: France Telecom, in about 3.5 years; AstraZeneca, 4; Telefonica (TEF), 5; and Roche Holding (RHHBY), 7.

Huge potential in Latam

International telecom. Not much more to say here.

Global telecom stocks have handled the market correction quite well. Both Telefonica and Vodafone posted great revenue and profit growth. I prefer Telefonica over Vodafone, because of the potential tax bill Vodafone has with their buyout in India. Telefonica is expanding into Italy, Latin America and Spain. I conscider both of these companies as global investment plays, they have the capital to make big investments in high growth emerging market economies, and at the same time improve profitability and return on investment.

Global telecom stocks have handled the market correction quite well. Both Telefonica and Vodafone posted great revenue and profit growth. I prefer Telefonica over Vodafone, because of the potential tax bill Vodafone has with their buyout in India. Telefonica is expanding into Italy, Latin America and Spain. I conscider both of these companies as global investment plays, they have the capital to make big investments in high growth emerging market economies, and at the same time improve profitability and return on investment.

1 euro special dividend payable in 2008