Today I am looking at why I believe recent riser Vodafone (LSE: VOD) (NASDAQ: VOD.US) is poised to keep moving skywards.
Investors in line for bumper returns
Vodafone’s long-running saga over what to do with its 45% stake in Verizon Wireless came to a conclusion earlier this month, after Verizon Communications formally agreed to acquire the firm’s holding for around $130bn. Shares shot higher after prolonged uncertainty over the division — including chatter concerning a takeover of Vodafone itself — was put to bed.
The stock was also helped by Vodafone’s pledge to return 71% of the deal’s proceeds, equivalent to 112p per share, to its shareholders.
Vodafone has a sterling history of rewarding investors with bumper payouts, having lifted the full-year payout steadily for many years and comfortably offering above-average dividend yields. And the firm advised at the time of the Verizon announcement that it will raise the dividend for the year ending March 2014 to 11p, an 8% on-year increase, owing to its strong cash generation. This dividend currently carries a 5.2% yield compared with the current 3.2% FTSE 100 forward average.
German multi-services move a canny decision
Vodafone’s busy September also saw it receive the go-ahead for its approach to buy Kabel Deutschland late last week, after three-quarters of the German company’s shareholders approved the proposed €7.7 billion takeover deal. The news came as relief to the company amid swirling rumours that Vodafone would have to hike its offer to push through the deal.
Vodafone can now enjoy the fruits of Germany’s biggest cable operator — Kabel Deutschland supplies more than 8.5m households in the country, and offers extensive television, broadband, and fixed-line and mobile telephone services to its customers.
The scramble to provide multi-services entertainment continues to hot up across the continent, so Vodafone’s move — which should also enable the firm to arrest its declining turnover in the country through various tie-ins with Kabel Deutschland’s existing product suite — in Europe’s biggest economy bodes well for future growth.
Fresh investment injections on the cards
The divestment of Verizon Wireless has not only ratcheted up expectations of further acquisition activity in the near future, but the proceeds should also give the firm’s new three-year, £6bn Project Spring organic investment scheme a shot in the arm.
The scheme will concentrate on investing in “4G, 3G, fibre and broadband, enterprise services and improved customer experience across all of our market”, which the company believes is crucial in latching onto galloping appetite for high-speed data across the globe. The plan should help the firm to address enduring difficulties in its core European markets as well as supplement accelerating business in emerging markets.
