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What’s Telling Me To Buy Vodafone Group plc Today

Today, I am looking at Vodafone (LSE: VOD) (NASDAQ: VOD.US), and tallying up whether to add the mobile operator to my stocks portfolio.

Bright spots amid the recent gloom

Vodafone announced in July’s interims that group service revenues dropped 3.5% during the April-June quarter, the impact of economic difficulties and regulatory difficulties in Europe hampering performance. Although this was concentrated in the south — revenues in Italy fell 17.6%, for example — in Germany and the UK revenues dropped 5.1% and 4.5% respectively.

Still, there were a number of points which again highlighted the firm’s great growth potential. Its Verizon Wireless joint venture saw service revenues rise 7.2%, a result which underlines the strength of the operation and thus value should Vodafone decide to sell up. And emerging markets also performed well, led by Turkey and India where revenues rose 15.5% and 13.8%.

And after the company announced plans to keep capital expenditure ‘broadly steady‘ looking ahead — the firm spent some £6.3bn in this area last year — investors can expect M&A activity to give earnings an extra boost.

German invasion ready to pump up earnings

Vodafone officially launched its takeover for Germany’s Kabel Deutschland at the end of last month. The ability to offer multiple media services is becoming a red-hot area for telecoms giants across Europe, who see this as a lucrative way of unlocking revenues. Just look at the acrimonious battle between BT Group and BSkyB due to the former’s decision to offer free sports coverage to its broadband customers.

For Vodafone, the Kabel Deutschland link-up will give it access to customers in the continent’s largest economy across the television, broadband, mobile and fixed-line telephone sectors.

Excellent value as earnings set to accelerate

City analysts expect Vodafone to deliver solid earnings per share growth over the medium term, with a 3% expansion in the year ending March 2014 expected to rise to 6% the following year.

And in my opinion the company offers exceptional value for money at current levels. A prospective P/E ratio of 12.3 for the current year represents a discount to the mobile telecoms sector average of 15.6, as well as a forward reading of 16 for the wider FTSE 100.

Dial in for deluxe dividends

Vodafone has a stellar multi-year record of providing chunky dividend growth to investors, and brokers expect payouts to keep rolling in the medium term — last year’s total dividend of 10.19p is anticipated to rise to 10.29p and 10.55p in 2014 and 2015. These payments carry yields of 5.2% and 5.3%, comfortably above the prospective 3.1% average for the UK’s 100 largest-listed entities.

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> Royston does not own shares in any of the companies mentioned in this article. The Motley Fool has recommended shares in Vodafone.