In the search for dividend paying equities, one stock that stands out recently is Vodafone (VOD). It combination of low valuation, generous dividend yield and huge cash flow makes its stock enticing here.
Vodafone Group plc provides mobile communications in Europe, Africa, the Asia Pacific, the Middle East, and the United States. The company offers various handsets; voice and messaging services; data services comprising Internet, email, music, games, and television; and fixed services, including fixed voice and fixed broadband solutions. The company owns and manages approximately 2,100 stores selling services and providing customer support, as well as operates approximately 7,600 Vodafone branded stores to sell its products and services through franchise and dealer arrangements. The company has approximately 341.1 million mobile customers.
10 reasons to own Vodafone at $26:
- It yields over 5% and has grown its dividend payments an average of 7% over the past five years. It also plans to raise its dividend 7% annually through FY 2013.
- It sells at the bottom of its five-year valuation based on P/B, P/E, P/S and P/CF.
- It has pull backed by a little over 10% in the last few months due to concerns over Western Europe (where VOD gets 70% of revenues). I believe these concerns are overstated as although impacted on the margin, telecom services are pretty recession resistant.
- The market consistently does not seem to fully recognize Vodafone’s 45% stake in Verizon Wireless (VZ), which is a huge asset.
- VOD seems to have put in a short term technical support level at just under $26 a share.
[Click to enlarge]
- It has an A- rated balance sheet, throws off operating cash flow of $20B a year and has a beta of under 1.
- Its emerging markets revenue is growing smartly and it is doing a good job of shedding assets in slow growing Europe (France and Belgium) and reinvesting in higher growing emerging countries (India).
- Vodafone is selling at under 10 times this year’s projected earnings and nine times 2012’s consensus EPS.
- It is on track to achieve 1 billion pounds in its cost savings program initiated in 2010. It also should benefit from increasing smart phone penetration in its core markets. These two trends should allow it to maintain margins despite challenging times in Europe.
- At $26, it is under analysts’ estimates. S&P has a price target of $29 on VOD and Morgan Stanley has an overweight rating on the stock.
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in VOD over the next 72 hours.
