Vodafone: The Share That Just Keeps Giving
LONDON -- What do you think is best to go for in these tough times, dividends or share price growth?
Ace investor Neil Woodford is renowned for investing in good dividend-paying shares, as you can see if you get yourself a free copy of The Motley Fool report "8 Shares Held By Britain's Super Investor," which examines a few of the sectors that Woodford has invested in.
But if you buy such shares when they're cheap, there's a good chance you'll get decent share price growth into the bargain, too. And that's exactly what Neil Woodford and other investors who bought Vodafone (ISE: VOD.L) shares alongside him have been enjoying.
In fact, Vodafone shares hit a 52-week high on Wednesday, peaking at 184.9 pence, before settling back to 181 pence today. And from the 103 pence depths of 2008, the shares are up around 75%, rising 12% in the past 12 months. That's a decent steady share price appreciation, I reckon.
But what about the dividends?
Even after that solid share price performance, full-year forecasts for the year ending March 2013 put the shares on a prospective dividend yield of a massive 7.1%, with a price-to-earnings ratio of a modest 11. And for 2014, the forecast yield rises to 7.4%.
Vodafone's longer term dividend trend looks like this...
Year | Dividend | Increase | Yield |
|---|---|---|---|
2008 | 7.51 pence | - | 5% |
2009 | 7.77 pence | 3.4% | 6.3% |
2010 | 8.31 pence | 6.9% | 5.5% |
2011 | 8.90 pence | 7.1% | 5% |
2012 | 9.52 pence | 6.9% | 5.5% |
2013 (estimate) | 12.9 pence | 36% | 7.1% |
2014 (estimate) | 13.6 pence | 5.4% | 7.5% |
To me, that makes the shares look cheap now, even though they have just reached a 52-week high. At the time of its last results announcement, Vodafone reiterated its plan to raise its dividend by at least 7% per year, so we should be set for more of the same for some years to come.
The rest of the sector
But it's not just Vodafone. Take a look at the following table showing forecast dividends for a few other telecoms operators...
Company | Dividend 2013 | Yield | Dividend 2014 | Yield |
|---|---|---|---|---|
BT (ISE: BT-A.L) | 10.1 pence | 4.7% | 11.3 pence | 5.2% |
TalkTalk (ISE: TALK.L) | 10.2 pence | 5.5% | 11.8 pence | 6.3% |
KCOM (ISE: KCOM.L) | 4.5 pence | 6.2% | 5.9 pence | 8.1% |
Telecom Plus | 30.3 pence | 3.5% | 33.5 pence | 3.9% |
Increasingly, the telecom companies are publishing plans for steady dividend increases, like BT, which has told us it expected dividends to be increased by 10%-15% annually for the next three years, and KCOM, which aims to raise its dividend by at least 10% per year.
All told, this looks like a cheap sector to me, with Vodafone being the clear leader -- but I must say I like the look of KCOM, too.
And I reckon there are other cheap sectors out there, too, like the FTSE's big housebuilders. If you want some more ideas for bargain sectors right now, you might benefit from getting a copy of the free Motley Fool report "Top Sectors for 2012," which identifies three more that Motley Fool analysts think are cheap.
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At the time thisarticle was published Alan does not own any shares mentioned in this article. The Motley Fool has a disclosure policy.
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