Why Vodafone Is A Dividend King
Christopher is a member of The Motley Fool Blog Network -- entries represent the personal opinions of our bloggers and are not formally edited.
Vodafone (NASDAQ: VOD) serves over 360 million customers in the wireless industry and is second only to China Mobile (NYSE: CHL) with a network that spans over 22 countries. The telecom giant also owns a 45% interest in Verizon (NYSE: VZ), the largest mobile carrier in the United States. Diversity, consistency and growth into new territories make Vodafone a dependable company that can provide a stable and steady dividend payout for many years to come. Furthermore, 2012 will be a defining year for the telecom, which seeks a way into new territories where it can continue to expand its influence.
One of the main drivers of Vodafone’s growth is its agreements with a great number of mobile carriers across the world that allow it to cooperate with each partnered company at varying levels of participation. Vodafone has access to all seven continents, even though the telecom only has a joint or majority share in 22 countries. This extends the influence of the company well beyond its base in those 22 countries and gives it access to an extremely diverse network that spans the entire globe.
It even has an agreement with China Mobile that allows it to gain access to the largest growing economy in the world. This diverse base of operations provides Vodafone with a very wide economic moat, protecting it against the volatile economy in Europe. Vodafone is able to draw from its presence in areas such as South America, Russia and India for the time being until the European economy recovers.
Vodafone has grown its assets over the last three years from $219 billion to $242 billion while only adding an extra $5 billion in liabilities over the same period. It possesses in assets almost two and a half times what it possesses in liabilities and less than half of its liabilities are in the form of debt— at a total long term debt of $46.7 billion. The company posted profits of $13 billion and $12.6 billion in 2010 and 2011 and its stock has grown from a value of $16 per share to $28 over three years.
In recent news, Vodafone has abandoned its plans to acquire Largo, which would have given it a 50% share in the Greek market. One of the main factors behind Vodafone’s withdrawal from negotiations was the fact that the government was very unlikely to approve the deal. Market uncertainty also played a factor, but despite the lost deal, Vodafone still maintains a strong foothold in Greece that is growing and it has stated that it has no intention of giving up on Greece going forward.
The most apparent sign of Vodafone’s stability and success is the company’s buy back of 1.4 billion of its shares since last June and its dividend has grown rapidly over the last year. In November of 2010, it released a dividend payout of $0.45 per share and by June of 2011, the dividend more than doubled to reach $0.95 per share. In November, it released a joint dividend and special cash dividend that totaled $1.09 per share which paid out at a ratio of 0.72 for a yield of just over 3%.
As Vodafone continues to buy back its own stock, I believe it will gain more attention from investors who see value in both the short and long term. A 3% yield coupled with a gain in stock value of 75% over just three years has already made this a worthwhile investment for those who have taken a position already. I believe that Vodafone will only gain momentum in 2012, however, because of its intense desire to expand its operations in Greece and to seek out more untapped markets in its quest to surpass China Mobile be the largest communications company in the world.
Its versatility and assets compared to its liability make this an extremely safe pick due to the very strong hedge that Vodafone has created for itself. Vodafone functions in a high demand market and is able to do so without any negative influence from individual economies across the markets it has a foothold in. It possesses a growing dividend that I believe will only continue to grow in years to come and its stock has posted gains over the last three years making it a great pick in the telecommunications sector for any mid to long term strategy.
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