Vodafone Group plc vs Talktalk Telecom Group PLC: Which Is Better For Income And Growth?

Vodafone (LSE: VOD) (NASDAQ: VOD.US) and Talktalk (LSE: TALK) are two very different companies, with different plans for growth.

Indeed, Vodafone is a global telecoms giant worth upwards of £57bn and Talktalk is a tiny national player, with a market value of only £2.8bn. However, smaller companies like Talktalk are usually able to grow faster than their larger peers.

So, should investors choose Talktalk over Vodafone?

Uncertain future

The main problem with Vodafone at present, is the fact that the company’s future is relatively uncertain. You see, now that Vodafone has closed the Verizon deal, City analysts expect that the company’s earnings per share slump 33% from 14.2p for 2014, to only 9.6p for 2015.

That said, we know that Vodafone has not wasted any time spending its cash from the Verizon deal. The company has made numerous acquisitions around the world in an attempt to fill the hole left by Verizon.

However, as of yet, it is not clear how these acquisitions will benefit Vodafone and if the company has been using cash effectively.  Vodafone is still haunted by its botched acquisition of German company, Mannesmann, one of the largest corporate mergers ever, although soon after the deal it became apparent that Vodafone had overpaid and the company was forced to take losses related to the deal in excess of £23bn. 

Investors know where they stand

On the other hand, with Talktalk, investors know where they stand.

For example, Talktalk is driving organic growth within the UK and the company reported revenue growth of 5% within its February interim management statement. The company’s average revenue per user also increased by 5.2%.

Unfortunately, during the same period Vodafone’s revenue declined 3.6% and free cash flow slummed 14.2%.

What’s more, Talktalk’s management is committed to a 15% per annum dividend increase for the next few years, while City analysts are predicting that Vodafone’s dividend payout is expected to remain relatively unchanged until the end of the decade.

Results reflect investment for growth

Having said all of that, Talktalk’s income is expected to crash 51% this year, which is concerning. However, this performance reflects the company’s investment for growth, as Talktalk is spending£86m to grow its TV, mobile and fibre bases.

Actually, part of this drive for growth includes the roll out of CityFibre, an ultra-fast broadband service launched in conjunction with Sky. The roll out will give Sky, TalkTalk and CityFibre the opportunity to test a new cost effective approach to building a viable pure fibre network, independent from BT’s existing infrastructure.

As a result of these growth initiatives, Talktalk’s earnings are expected to rebound 109%, to 15.1p per share for 2015.

Foolish summary

Overall, it would appear that Talktalk’s plans for growth are more impressive than those of Vodafone. Specifically, it is not yet known how much of an effect Vodafone’s recent spate of acquisitions will have on profits and this uncertainty is worrying.

On the other hand, Talktalk continues to grow revenue, expand income and is committed to 15% per annum dividend increases.

With that in mind, it seems as if Talktalk is the better choice for income and growth.