Last week, I read an interesting report in the Financial Times covering the telecoms market. This included a chart showing the five-year share returns of 20 major European telecoms companies. This included two well-known UK firms: BT Group (LSE: BT.A) and Vodafone Group (LSE: VOD). Alas, both shares had performed poorly over the past half-decade, with BT ranking 14th and Vodafone 15th among this peer group.
This got me to thinking: which would I rather own right now: BT or Vodafone shares? I don’t own either stock today, but does one stand out ahead of the other for me as a bargain-hunting value investor? Let’s find out.
BT versus Vodafone shares: past performance
Here’s how BT and Vodafone shares have performed over seven different timescales.
| Period | BT shares | Vodafone shares |
| One day | 1.6% | 2.3% |
| Five days | 4.5% | 7.2% |
| One month | 1.3% | 1.8% |
| Year to date | 12.4% | 14.9% |
| Six months | 18.5% | 13.1% |
| One year | 9.5% | 0.9% |
| Five years | -39.3% | -44.0% |
As you can see, both BT and Vodafone shares have risen in value over all periods ranging from one day to one year. But over the four timescales ranging from one day to this calendar year, Vodafone stock has beaten BT. However, BT takes top spot over the three periods ranging from six months to five years.
What’s interesting to me is that though these two FTSE 100 stocks have produced positive returns over durations of up to 12 months, both have performed very poorly over five years. For comparison, the Footsie has lost 0.8% of its value over the past half-decade. All these returns exclude dividends, by the way. But when I buy a company’s shares today, I buy its future prospects and not its past. So which telecoms giant’s stock looks more attractive to me right now?
BT versus Vodafone: the fundamentals
Here’s how BT and Vodafone shares compare on current fundamentals, based on Tuesday’s closing prices:
| Company | Share price | Market value | Price/earnings | Earnings yield | Dividend yield |
| BT Group | 189.78p | £18.8bn | 15.2 | 6.6% | 4.1% |
| Vodafone Group | 128.98p | £36.2bn | 21.1 | 4.7% | 5.9% |
The first thing I note is that Vodafone is almost twice as big as BT in terms of market capitalisation. The second thing I spot is that both shares offer market-beating dividend yields. Currently, the FTSE 100 offers a dividend yield of nearly 4% a year. BT’s cash yield slightly exceeds this, while Vodafone’s dividend yield is close to 1.5 times the Footsie’s. The third thing I see is that BT’s earnings yield exceeds Vodafone’s by a factor of nearly 1.4, making it theoretically ‘cheaper’.
To sum up, I actually like the look of both BT and Vodafone shares today. They may not be outright bargains in terms of current price-to-earnings ratings, but their dividend yields look good to me. Of course, the UK telecoms market is a cut-throat business that has been the graveyard of many a firm. Lastly, I know it’s a bit of a cop-out to say this, but I can’t choose and I’d buy both shares today — for their current dividend yields and future earnings prospects!