Fund manager favourite Vodafone props up UK portfolios
The telecommunications giant has continued to offer investors impressive growth and dividend hikes while the FTSE has plummeted.
Investors looking for both growth and income should look to Vodafone, according to The Share Centre’s Sheridan Admans, who points to a recent dividend hike and continued expansion in the Asia Pacific as reasons to be optimistic.
Vodafone, which is the most popular stock with UK fund managers, appearing in the top-10 holdings of 73 per cent of UK Equity Income portfolios, became the highest-yielding company in the FTSE late last year following a 7 per cent increase in its dividend to 9.52p a share.
A further special dividend back in February sent the total yield for the year to 13.52 per cent. However, Admans believes Vodafone is an attractive option for both growth and income investors.
"Some analysts are expecting that dividends of $13bn could be paid by its operations in the year ahead and the potential for further dividends from Verizon Wireless, Vodafone's US business in which it has a 45 per cent stake, has recently been highlighted again," he said.
"Growth seekers will also be pleased to see Vodafone continuing to seek new areas of potential growth for the business. It has recently launched a 'charge to bill' service that allows customers to charge purchases from online application stores to their mobile phone accounts and initial results have been encouraging."
"Moreover, emerging markets continue to experience steady growth and a strategic partnership with Asian mobile alliance, Conexus, should increase Vodafone's presence in Asia. The data services side of the business is also performing well and now represents 14 per cent of revenues and is a core part of the company’s strategy."
Growth-focused UK managers have also been increasing their exposure to the company: according to FE data, 159 of the 297 funds in the UK All Companies sector – or 54 per cent – hold Vodafone in their top-10.
In the total return stakes, the stock was one of the best performing in the FTSE 100 last year, gaining 16.53 per cent compared with losses of 3.71 per cent from the index. Vodafone has also marginally outperformed the FTSE so far this year, with a return of 1.51 per cent.
Performance of stock vs index since 1 January 2011
Source: FE Analytics
Despite its reputation as a defensive company, Vodafone has outperformed the FTSE over the past three years, a period that includes the QE-fuelled rally in 2009 and 2010.
"We recommend Vodafone
as a ‘buy’ for investors wanting a business exhibiting defensive qualities, strong levels of free cash-flow, a debt-reduction plan and a concentration on core growth opportunities while looking for the next growth prospect," continued Admans.
"Our recommendation is supported by further cost cutting and the chief executive’s [Vittorio Colao] expectation of £8.2bn of further gains from its US operations. The group also remains attractive for income seekers, with a forecast dividend yield for 2013 of over 6 per cent."
Among those with a particularly high exposure to Vodafone are the £655m BlackRock UK Income
portfolio, which has a 9.77 per cent weighting, and the £2.3bn Newton Higher Income
fund, which has a 7.2 per cent weighting.