3 Reasons Why Verizon Shareholders And Dividend Investors Should Buy Vodafone

| About: Vodafone Group (VOD)
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Vodafone Group PLC (NASDAQ:VOD) shares have been noticeably weak in the past month, but this could be providing investors with a solid long-term buying opportunity. This leading telecom services provider is based in the United Kingdom, however, it has operations and interests in many parts of the world. The stock price decline appears to be related to a general sell-off in global markets, as well as dividend stocks due to concerns about tax rates for 2013. Naturally, the ongoing economic weakness in numerous European countries has also impacted the share price of many companies that have exposure to that region, just as Vodafone does. However, Vodafone has relatively limited exposure to Southern Europe and it is diversified globally. Here are three reasons to consider buying the stock on the recent pullback:

1) Vodafone has a tremendously valuable asset in the United States. It owns a significant stake in Verizon Wireless (NYSE:VZ). An R.W. Baird analyst named William Power recently upgraded the stock and a recent Barron's article summarized the upside potential stating:

"Vodafone represents an attractive way to invest in the strong trends at Verizon Wireless at a reasonable valuation" and that it represents a play on growth in emerging markets, with an impressive yield that is likely to rise. Power estimates that the company's 45% stake in Verizon Wireless could be worth more than $90 billion, which accounts for more than half of Vodafone's enterprise value. There is also upside for more data usage as smartphones grow more ubiquitous."

2) By comparing Vodafone to its U.S. counterparts, it looks undervalued. Shares of AT&T (NYSE:T) trade for about 13 times earnings, and Verizon shares trade at around 15 times earnings. By contrast, Vodafone trades for just about 10 times earnings which represents a discount of about 25% to 35%. The S&P 500 Index (NYSEARCA:SPY) currently trades for about 14 times earnings and yields just over 2%, so Vodafone looks undervalued next to that metric as well.

3) Vodafone's dividend yield of roughly 6% is very attractive in a low rate world. Plus, it has a history of raising the dividend. For example, in 2004, the company paid out about 2 pence in dividends, but thanks to regular increases, the dividend is now about 6.5 pence per share and in 2012, it even paid out a special bonus dividend of 4 pence per share. As Vodafone continues to pursue a growth strategy, especially in emerging market countries, it could be poised to increase the dividend in the future.

Vodafone shares appear to be bottoming out at about $25 and it offers investors a "backdoor" way to invest in Verizon at a lower valuation. It might take some time for a rebound, but investors are poised to collect a solid dividend while waiting for a higher share price.

Here are some key points for VOD:
Current share price: $25.33
The 52 week range is $24.95 to $30.07
Earnings estimates for 2012: $2.52 per share
Earnings estimates for 2013: $2.59 per share
Annual dividend: yields about 6%

Here are some key points for VZ:
Current share price: $42.93
The 52 week range is $36.80 to $48.77
Earnings estimates for 2012: $2.46 per share
Earnings estimates for 2013: $2.86 per share
Annual dividend: $2.06 which yields 4.8%

Data is sourced from Yahoo Finance. No guarantees or representations are made. Hawkinvest is not a registered investment advisor and does not provide specific investment advice. The information is for informational purposes only. You should always consult a financial advisor.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.