Hold Vodafone for 4.6% dividend: Buying any company on the hope of takeover activity is a dangerous proposition for an investor, but Vodafone is attractive even without the prospect of takeover approach as it invests heavily in improving mobile reception, consolidates the European market, and offers decent dividend income. The shares have been on a march, gaining more than 8% in under a week, after John Malone, the Boss of rival cable company Liberty Global, said that Vodafone would make “a great fit” with his company. A merger of the Vodafone and Liberty would be far more palatable for Vodafone investors, who were concerned that Chief Executive Vittorio Colao would make a bold bid for the U.S. cable group. Last week the company reported its first rise in quarterly sales in nearly three years and this shows that the European mobile market is moving towards a recovery. The shares also pay a steady dividend that is forecast to rise by 2%, or about the inflation rate, to 11.5p, offering a prospective yield of 4.6%. The shares are highly rated, trading on 49 times forecast earnings, falling to 39 times next year, but Questor thinks this is a fair reflection of a company in transition having only last year sold off its largest asset in Verizon Wireless. We said investors should ‘Keep calm and hold Vodafone’ last year (222p, February 8) and the long term outlook is now improving. Ignore the bid chatter and hold these shares for income long term. Vodafone at 250.75p-3p. Questor Says “Hold”.
Vodafone resumes work on potential IPO of India division: Vodafone has resumed work to assess whether to proceed with an initial public offering of its Indian business after the conclusion of an $18 billion auction of wireless spectrum earlier this year.
Premium phone charges set to drop under new Ofcom rules: Charges to premium phone lines are set to get a little bit cheaper under sweeping changes to be introduced in July by the communications regulator Ofcom.
Although it may not be the number one reason to buy Vodafone's shares, M&A activities are always interesting for investors as the combination of two companies could utilize significant synergy benefits for the shareholders. Vodafone is in a perfect financial position to be part of the ongoing consolidation in the telecom- and cable services sector. After the sale of Verizon Wireless to Verizon Communications, Vodafone has a very strong balance sheet and low net debt. This enables the company to be patient and wait for the right acquisition targets that fit the company's strategy (quadruple play, focus on data use). Conclusion Vodafone remains one of my favorite dividend stocks to own with a current yield of 4.4%. I find that Vodafone's dividend is secure. First of all, my doubts regarding the company's performance in Europe are fading away as the company is likely to return to organic revenue growth sooner rather than later. Second, the completion of Project Springs will give a major boost to Vodafone's free cash flow as capital expenditures will drop and cash flow from operations will improve. This enables Vodafone to pay the dividends out of its free cash flow over the long-term. Finally, Vodafone might also be an opportunistic buy considering the ongoing consolidation in the telecom- and cable services sector.
Strong cash flows Vodafone is typically considered as a dividend stock. Not surprisingly, the company has a shareholder friendly dividend policy. Vodafone currently yields 4.4%, a bit lower than its 5.3% yield one year ago. Still, the company's current yield is comparable to the yield of its peers, for example Verizon Communications (NYSE:VZ). For dividend stocks, the ability to generate free cash flow is important because it indicates the potential to pay dividends in the future. Naturally, every dollar earned can only be spend once: for investments or return to the shareholders. In 2015, Vodafone reported free cash flow of $1.7 billion. This amount is lower than the total dividend payments of $4.6 billion. However, Vodafone also spent over $14 billion in capital expenditures in order to support the completion of its investment program Project Springs. In 2016, Vodafone is likely to spend another $13 billion of capital expenditures to complete this investment program. Despite these very large amounts of capital expenditures, Vodafone still managed to report positive free cash flow in 2015 and also expects positive free cash flow in 2016. I find that Vodafone's positive free cash flow guidance is strong given the fact that the company invests a very large sum to complete Project Springs. Project Springs focuses on building a 4G network in Europe and a 3G network in India. This will enable Vodafone to benefit from the demand for calls to data use. After the completion of Project Springs, free cash flow should rise significantly driven by both lower annual capital expenditures and higher cash flow from operations. Therefore, Vodafone will be able to pay their dividends out of its annual free cash flow. This ensures dividend payments for a long-term period. M&A activity Finally, Vodafone is likely to remain active on the M&A front. Several M&A rumors became public in the last week, naming Vodafone as both buyer and seller. Goldman Sachs (NYSE:GS) reported that Vodafone is likely to sell some of its assets in the near future (see this article). Earlier, Liberty Global (NASDAQ:LBTYA) owner John Malone suggested that the combination of Vodafone and Liberty Global would be a "perfect fit" (see this article). I do not consider a merger between the two companies or a take-over of Liberty Global by Vodafone very likely. Such a deal would face major antitrust issues in Europe. However, it is a fact that there is an ongoing consolidation in the telecom- and cable services sector and Vodafone is likely to take part in it. Although it may not be the number one reason to buy Vodafone's shares, M&A activities are always interesting for investors as the combination of two companies could utilize significant synergy benefits for the shareholders. Vodafone is in a perfect financial position to be part of the ongoing consolidation in the telecom- and cable services sector. After the sale of Verizon Wireless to Verizon Communications,
It was quite a week for British telecom- and cable services provider Vodafone (NASDAQ:VOD). Not only did the company report its full-year 2015 results, there were also several reports indicating renewed M&A activities in the near future. During this turbulent week, Vodafone's shares closed at $39.21 per share on Friday, a 52-week high. In my previous coverage, I already mentioned Vodafone's dividend yield as one of the reasons to buy its stock (see this article). Given the developments last week, I find that there are three additional arguments to buy Vodafone even considering that the stock trades at its 52-week high. In this article, I will discuss Vodafone's improving performance in Europe, development of future free cash flows and the effect of potential M&A activities. Recovery in Europe As I mentioned above, Vodafone published its full-year 2015 results last week (see Q4 results). Although the market reaction was mixed at first, shares eventually surged. In my opinion, the performance of Vodafone's European assets were particularly promising. At first sight, the results may not seem to be impressive as organic growth in Europe declined 4.7% compared to last year. However, negative organic revenue growth was much smaller in the last two quarters of the full-year (-3.6%) compared to the first two quarters (-6.5%). Looking at full-year 2014, the improving trend in Europe becomes even more obvious. Organic revenue in Europe declined by 9.5% in 2014, compared to just 3.6% in the second half of 2015. Recent GDP data from the European Monetary Union confirm the improving trend in Europe and even indicate that Vodafone's recovery is likely to continue. According to this news item, the four most important economies Germany, France, Italy and Spain reported GDP growth in the first quarter. Vodafone has significant assets and activities in three of the four countries (only not in France). In fact, 40% of Vodafone's revenue was earned in these three European countries. As a result, Vodafone is likely to benefit from the improving trend in Europe and finally return to revenue growth in its key European markets.
Vodafone investors want £120 billion Liberty deal: Vodafone is this weekend being urged by its biggest shareholders to sell off its far-flung networks and embrace a £120 billion merger of its European business with Liberty Global, the cable company behind Virgin Media and controlled by the U.S. billionaire John Malone.
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