After a prolonged period of contraction, FTSE stock Vodafone (LSE: VOD) is growing again, its dividend yield is more than 6.0%. So the question is should I buy it?

Vodafone is a stock that’s fallen on hard times, but that could all be about to change thanks to price rises, new services and increasing customer numbers. 

This is a combination that’s driving a turnaround at the group, and one that isn’t reflected in its share price in my opinion. 

Growth strategy

Vodafone was once a giant among the FTSE constituents; however, these days it’s a more modest concern with a market cap of £32.5bn. Having been through a period of contraction, the stage looks set for Vodafone to start growing once more. 

In its first-quarter update, published in late July, Vodafone outlined its growth strategy for Europe and Africa, its principal markets. The firm’s goal is to grow through service, simplicity, experience and innovation.  

That strategy seems to be working, as it’s grown in Europe and Africa over the last five quarters. 

Growth in Africa, where Vodafone has almost 50m users, outstrips that seen in Europe. However, service revenues in Turkey grew by almost 36% during the first quarter of the financial year 2023, with Egypt growing by 19.5% over the same period. 

UK service revenue growth rose by 6.5% in Q1, and the number of UK and European mobile customers in a contract with Vodafone also grew sharply, up by 215,000. 

What’s more, unlimited mobile plans are driving higher average revenue per user numbers, meaning that Vodafone is adding new customers and earning more out of them.

Future potential

Vodafone has an eye on the future, and it has amassed 25.5m European broadband customers and almost 22m TV subscribers. 

It offers high-speed 5G networks in 318 European towns and cities, and some 159m devices connect to the internet of things via a Vodafone SIM card. 

Vodafone also retains an 81% stake in Vantage Towers, one of Europe’s leading cellular infrastructure companies, a sector that has seen M&A activity.

The stock has a current dividend yield of 6.26% — that’s almost twice the current average for the FTSE 100. It has paid dividends since 1991, giving it a 30-year track record of rewarding shareholders. 

As with the market cap and share price, the dividend is lower than it once was, but there is no reason that it can’t grow in line with the wider business.

Of course, being consumer-focused, Vodafone is sensitive to variations in household spending, which high rates of inflation and rapidly rising utility bills may temper over the next six months. 

However, I think we can assume that most customers will be very reluctant to give up their mobile devices and connectivity.

Vodafone’s recovery potential and dividend yield make it an attractive proposition, and one that will be on my watchlist of possible buys well into the autumn.

More reading

Darren Sinden has no position in any of the shares mentioned. The Motley Fool UK has recommended Vodafone. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Sometimes being boring can be a good thing 

Experian is a £26bn company that generates over £6bn in revenue, which — as of the end of June — was growing that revenue at an impressive 8%.

I say impressive because that growth was generated organically rather than being made through acquisitions, an important distinction.

Experian has a track record of performing well when the economy dips. For example, during the aftermath of the global financial crisis in 2008, Experian’s worst performance was a growth rate of 2%, posted in 2010. Its worst-ever year was 2015 when it still grew by 1%.

Though it’s London-listed, Experian is a global business with operations in North and Latin America, Europe, Africa, the Middle East, the UK and Asia Pacific. 

Latin American economies such as Brazil, where the financial services markets are being liberalised, present exciting growth opportunities for Experian. 

Investment bank Liberum forecasts that Latin American revenues at the company will grow by 15% in 2023, which would add two percentage points to the group’s organic growth tally.

What’s more, the company has several new products that should launch and scale over the next year. 

These include credit card and loan verification tools, and a cloud-based B2B platform that will provide customers with flexible, user-friendly and real-time data access. 

Increased use of big data will provide better market intelligence and allow for the creation of new products at Experian. For example, the companies Boost initiative in the US already collects permissioned data from 10m American consumers.

Positive outlook 

In its most recent trading update, posted on 14 July, the company forecast full-year growth of between 7% and 9% and said that organic growth in Latin America was running at 18%, and though they were seeing a slowdown in the US mortgage market, this represents just 4% of annual revenues.

However, that slowdown is being offset by strong growth in consumer marketplace products, whilst income from US consumer subscription services remains stable.

In terms of valuation, Experian is trading at around 21 times its 2023 earnings forecasts, with a dividend yield just below 2%, a discount to its US peers, for example, major US rival Equifax currently trades on 24 times earnings with a dividend yield of just 0.78%

Possible risks 

Experian’s track record suggests that it should perform well in any future recession. 

However, should the rise in energy prices and wider inflation continue unabated for an extended period, then that could damage consumer credit markets and the demand for Experian’s services.

Experian is firmly on my watchlist for my next investment because of its defensive nature, its track record of growth and the opportunity for expansion in the fast-growing Latin American markets. 

The share price is down by 23.5% year to date, versus a fall of just 3.4% for the FTSE 100, and that looks unwarranted to me. 

More reading

Darren Sinden has no position in any of the shares mentioned. The Motley Fool UK has recommended Experian. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

It’s often said that the British are a nation of animal lovers. This trait plays out in this FTSE 250 growth stock that has a healthy dividend history to boot. 

A recent survey from the Pet Food Manufacturers Association found that there are 40 million pets in the UK, and that 22% of households owned a dog, and another 18.% had a cat.

In total, there are thought to be 13 million dogs and 12 million cats in the UK, not to mention another three million small furry creatures that include rabbits, guinea pigs and hamsters.

Because we love our animals, we are happy to spend money on them

As a nation, we shell out £180m per month on them.

For young adults aged between 24 and 35 — the highest-spending demographic — that equates to an expenditure of around £125 a month on their pets.

What’s more, that spending is likely to be ‘price inelastic’, which means that pet owners won’t be looking to cut back despite rising prices and inflation.

For example, a 2020 survey by consultant Oliver Wyman found that 70% of pet owners planned to make no changes to their pet’s diet, regardless of the state of the economy or their finances.

How can I take advantage of these trends?

One way would be for me to buy shares in Pets At Home (LSE: PETS), the London-listed UK pet care business, which provides pet owners with everything from food to bedding, toys and veterinary services, from a one-stop shop, and via its subsidiaries Vets 4 Pets and The Groom Room.

In the financial year 2022, Pets at Home enjoyed record growth in sales and attracted 1.1 million new customers, taking its market share of the UK pet care space to 40%.

In fact, in the last five years 60% of the firm’s growth has come from increases in market share.

Group revenues grew to £ 1.32bn, up 15.3%, whilst like-for-like sales grew by 15.8% compared to 2021, and by almost 26% over two years. Pets at Home is also growing its online presence, and an omni- or multichannel approach to sales means that plenty of growth opportunities are still open to it.

Pets at Home grew its dividend by an impressive 47.5% to 11.8p per share, and it was able to increase customer revenue per staff member to almost £202,000 per annum, a jump of 10.2%.

Currently priced at 314p, the stock trades on an undemanding forward price-to-earnings ratio of 12 times 2023 earnings, with a prospective dividend yield of 4.30%.

With cash in the bank standing at £66m, it’s one of the few retailers in the current climate that can genuinely be said to be on a firm footing.

The shares have fallen by 32% year to date, a derating that wasn’t and isn’t justified by the fundamentals of the business.

These attributes are going to be in increasingly short supply and therefore very much in demand if the UK economy deteriorates further.

The risk in any investment in Pets at Home is that UK consumers could change their behaviour and attitudes toward spending on pets, in the face of a further substantial rise in the cost of living.

I will be watching Pets at Home closely looking for an appropriate entry level in the share price.

More reading

Darren Sinden has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.