Telkom Indonesia (TLK), or Telekomunikasi Indonesia, is a complicated machine with all the parts, I think, moving together in the right direction. Let me explain.

First, there's Indonesia's economy, which is forecast to show a 5.2% increase in gross domestic product in 2010 after 4.3% growth in 2009.

Second, there's the gradual improvement in Indonesia's credit rating: On Monday, Fitch upgraded Indonesia's sovereign debt to BB+ from BB. That's no small deal for a telecommunications company that has to access the capital markets frequently (although the debt-to-equity ratio looked to finish 2009 at just 33%).

Third, there's the company's dominance of the legacy land-line business and the company's 45% share of the wireless market.

That assures that Telkom Indonesia has the scale to beat back attacks from smaller competitors (the company is the aggressor in the most recent round of wireless price cuts) and that its growth will at least track growth in the Indonesia economy.

Fourth, the company's management is clearly focused on the bottom line. Telkom's efforts to reduce the age (about 40% of the company's employees are 40 or more) and size of its workforce has resulted in a reduction of more than 12,568 employees since 2002. Personnel expenses account for 24% of costs, the highest in the industry, so this effort attacks the right problem at the right time.

Fifth, the company's current strategy focuses on increasing revenue and earnings from Internet-related telecommunications services. These new services accounted for just 9% of revenue in 2009, but they carry a much higher profit margin than the company's landline and wireless businesses.

Over the last two years, dividends have been delivered in twice-yearly distribution with the next due, I estimate, this spring. The dividend yield right now is 3.5%.

With this post, I'm adding this stock to my Dividend Income portfolio. For why you want to add an emerging market stock to a dividend portfolio, see this post. 

At the time of this writing, Jim Jubak owned shares of Telkom Indonesia in his personal portfolio. He plans to add to that position three days after this is posted.