Today I am looking at why Vodafone Group (LSE: VOD) (NASDAQ: VOD.US) could be considered a superb stock candidate.
Mega multi-services exposure
Although Vodafone has cast its net wide on the acquisitions front in recent years, the company’s particular focus on the ‘quadruple play’ sector — comprising of television, broadband, fixed line and mobile telephone services — bodes particularly well for earnings growth.
The London firm lit the blue-touch paper back in 2013 with the £6.6bn purchase of Kabel Deutschland, Germany’s largest cable operator and a move which consequently gave Vodafone excellent exposure to Europe’s strongest economy. And Vodafone followed this up with the £6bn takeover of Spain’s Ono last summer.
With the world’s other major telecoms specialists also boosting their exposure to this lucrative sector, an arena which offers terrific cross-selling opportunities as customers choose to ‘bundle’ their services, Vodafone is also reported to be on the hunt for fresh targets at home. Indeed, many analysts have touted Sky and Liberty Global — owner of Virgin Media — as possible targets in the near future.
Emerging regions on the charge
Meanwhile, Vodafone is also ratcheting up its activities in red-hot developing regions to power the bottom line. This is hardly surprising given that rising disposable income levels and low saturation rates for mobile packages are driving consumer demand like never before.
As a result Vodafone saw organic service revenues from the Africa, Middle East and Asia Pacific (or AMAP) territory gallop 5.7% higher during April-September, to £5.8bn, a stark comparison to the company’s performance in its established European marketplaces — organic sales fell 6.5% here to £13.1bn during the period.
Not surprisingly Vodafone is ploughing vast sums of cash to boost returns from these regions, boosting its stake in Vodafone India in the spring for £1bn and shelling out £1.9bn to acquire a number of spectrum licences in the country to capture surging call volumes and data demand. India is easily Vodafone’s most exciting growth market, and organic service revenues here leapt 13.2% in the first half of fiscal 2015.
Dividends to keep dancing higher
While Vodafone’s ability to generate shedloads of cash is enabling it to embark on these capital-intensive initiatives, this quality has allowed the firm to keep returning vast swathes of cash to its shareholders through bulky dividend growth.
And with the telecoms play also expected to return to earnings expansion from next year — growth of 2% and 23% is pencilled in for the years ending March 2016 and 2017 correspondingly — the City’s army of analysts expect Vodafone to continue throwing up market-beating yields.
A total payment of 11p per share last year is expected to advance to 11.3p per share for the 12 months concluding this March, resulting in a chunky yield of 4.9%. And extra dividend hikes, to 11.6p in 2016 and 11.7p and 2017, push the yield still higher to 5.1%.