Sunrise Communications AG: A High-Yield Dividend Play with Strategic Resilience in a Stabilizing Swiss Telecom Sector

In an era where income-generating assets are scarce, Sunrise Communications AG (SWX: SUN) stands out as a compelling long-term investment. With a dividend yield of 7.4%—one of the highest in the Swiss telecom sector—the company offers a rare combination of attractive income and strategic financial discipline. Amid a challenging macroeconomic environment, Sunrise's Q2 2025 results underscore its ability to stabilize revenue, grow adjusted EBITDAaL, and maintain a robust free cash flow profile, all while navigating a competitive market and evolving regulatory landscape.

A Dividend That Stands on a Solid Foundation

Sunrise's 7.4% yield is not a gimmick but a reflection of its disciplined capital structure and commitment to shareholder returns. The dividend, paid from capital reserves and free of Swiss withholding taxes, is a structural advantage that should persist for roughly a decade. This tax efficiency enhances its appeal for income-focused investors, particularly in a low-yield world. The company's leverage ratio of 4.4x is conservative by telecom standards, ensuring flexibility to sustain payouts even in a downturn.

The recent Q2 results reinforce this resilience. While revenue declined 0.8% year-over-year to CHF732 million, the slowdown was moderated by cost savings, price increases, and a rebound in hardware sales. Adjusted EBITDAaL rose 1.9% to CHF254 million, outpacing expectations, and free cash flow surged to CHF153 million—a stark contrast to the CHF117 million outflow in Q1. These metrics suggest Sunrise is not just surviving but adapting to market pressures through operational efficiency and pricing power.

Strategic Resilience: Balancing Value and Volume

Sunrise's management has pivoted from a volume-driven growth model to one focused on value. Mobile post-paid customer additions, while slightly below consensus at 18,000, reflect a deliberate shift toward premium services. Fixed broadband additions, meanwhile, remained flat but aligned with expectations. This measured approach is paying off: mobile ARPU stabilized, declining 1.6% in Q2 (versus 3.6% in Q1), while fixed ARPU fell 4.5%, an improvement from 5.3% in the prior quarter.

The company's 5G rollout and product innovation are critical to this strategy. By targeting both price-sensitive and premium segments, Sunrise is positioning itself to capture market share without sacrificing margins. Its recent extension of Swiss National Hockey TV rights through 2035 also provides a long-term revenue tailwind, albeit a modest one. Meanwhile, the completion of UPC customer migration and the introduction of new product portfolios signal a focus on customer retention and cross-selling opportunities.

A Long-Term Play in a Stabilizing Sector

Sunrise's 2025 guidance—“broadly stable” revenue and “stable to low-single digit growth” in adjusted EBITDAaL—may seem unexciting, but it reflects a mature business with predictable cash flows. Capital expenditures are expected to remain at 15-16% of sales, a level that balances network investment with financial prudence. With adjusted free cash flow projected at CHF370-390 million, the company has ample capacity to fund dividends and reinvest in growth.

The delisting of Sunrise Class A ADSs from Nasdaq may have reduced its global visibility, but it also eliminated the volatility associated with cross-border listings. The stock's strong technical sentiment—despite a “Sell” analyst rating—suggests undervaluation. A year-to-date price gain of 26.80% hints at market recognition of its improving fundamentals.

The Case for Investors

For income-oriented investors, Sunrise offers a rare trifecta: a high yield, a sustainable payout ratio, and a business model that prioritizes long-term value. The company's strategic focus on 5G, product diversification, and cost control positions it to weather industry headwinds while maintaining its dividend. While the telecom sector is not without risks—regulatory shifts, competitive pricing wars, and macroeconomic volatility—Sunrise's financial resilience and tax-efficient dividend make it a standout.

In a market where many high-yield stocks are either speculative or overleveraged, Sunrise represents a disciplined, cash-generative alternative. For those seeking a stable income stream with the potential for capital appreciation, this Swiss telecom giant deserves a closer look.

Investment Thesis: Sunrise Communications AG is a compelling long-term income play, offering a high, tax-efficient dividend supported by stable cash flows and strategic reinvestment. Investors should consider it as part of a diversified portfolio seeking defensive, high-yield exposure in the Swiss market.