Back in 2000, Vodafone was a sexy technology company. Now it looks more like a tempting yield play.
Shares in Vodafone have edged up this morning after the mobile phone giant announced attractive first-half results.
I particularly liked the 6.8% increase in the dividend to 2.35p. Vodafone confirmed today that it plans to continue paying out 60% of its adjusted earnings in dividends, which means that the company should pay out a yield of at least 4.6% this year.
The other numbers were pretty good too and beat market expectations. Revenue rose 7.6% to £15.6bn while adjusted operating profit rose 7.5% £5.14bn. What's more, Vodafone's emerging markets business is now making a substantial contribution to operating profits, 37.5% of total profits came from those markets.
Vodafone's US operations are also doing well. Vodafone owns a 45% stake in Verizon Wireless, which has just become the leading US mobile phone player in terms of revenue.
However, it's not all good news. Vodafone's core business in Western Europe continues to suffer thanks to tough competition and pressure for price cuts from regulators. Chief executive Arun Sarin reportedly said today that prices are dropping 15% a year in its top four European markets with Germany being the worst hit. Indeed, overall revenue in Western Europe has slipped very slightly.
What's more, the problems in Germany have lead Sarin to announce a further £8.1bn write-off following a £23bn impairment charge earlier this year.
I'm not that worried by the write-off. We all know that Vodafone paid too much for several European businesses during the technology boom. What matters now is that Vodafone is paying out a chunky dividend and has a fast-growing emerging markets business.
On the downside, the emerging markets business may eventually be hit by the same factors that are damaging Western Europe. It's also possible that the rise of Internet usage via wireless "hot spots" may damage the mobile phone sector in the long-term. Still, a 4.6% yield is not be sniffed at, so I'm pretty positive on this share.
More:Vodafone's American Treasure
