Where To Reinvest Your Vodafone Group plc Windfall

The Vodafone Group plc (LON:VOD) money could buy ARM, J Sainsbury and Royal Mail outright.

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They’ve looked forward to this moment for the last six months.

And after reading all the documents and completing all the forms, next week the waiting will be over.

Yes, a smart band of savvy Foolish investors will soon collect their share of a GIGANTIC £50 billion windfall…

…and I’m pretty sure this mind-boggling payday will head immediately back into the market.

I am, of course, talking about Vodafone (LSE: VOD) (NASDAQ: VOD.US) selling its 45% stake in Verizon Wireless to Verizon Communications for $130bn.

Those with the skill to spot ‘the world’s largest hidden asset’ within Vodafone are in line to collect about 102p per share through a mix of Verizon stock and good old cash.

And talking of skill, let’s not forget about ace Motley Fool Share Advisor investor Charly Travers.

He was issuing Vodafone ‘buy’ notes way back in 2012 when he said:

“We think Vodafone’s 45% ownership stake in Verizon Wireless is quite valuable, and being underappreciated by the market.”

And as we all now know, it was a superb opinion.

When Charly made that Vodafone call, the group’s entire market cap was £87bn…

…while the $130bn agreed for the Verizon Wireless stake is now equivalent to about £78bn.

Clearly, Verizon Wireless was very underappreciated by the market – as Vodafone’s subsequent share-price performance has showed!

The money could buy ARM, J Sainsbury and Royal Mail outright

Anyway, there is now a £50 billion jackpot heading its way to smart Vodafone investors…

…and I am convinced it could have a substantial effect on several blue-chip stocks and perhaps even the wider market.

I mean, £50 billion is equivalent to the market values of ARM, Direct Line, easyJet, J Sainsbury, London Stock Exchange, Royal Mail and United Utilities combined…

…and represents more than half of the total ordinary dividends expected to be paid by quoted companies during 2014!

All the reinvestment could surely push the FTSE 100 towards 7,000 and beyond, couldn’t it?

But which shares could really tempt dividend-hungry Vodafone investors when their windfall eventually arrives?

You could reinvest in BT at a 2.6% yield

Within the Telecoms sector, there are three FTSE 350 income alternatives to Vodafone.

There’s good old BT (LSE: BT-A) (NYSE: BT.US), of course, whose last dividend was lifted 13% but whose rising share price yields only a predicted 2.6% right now.

Then there’s Talk Talk Telecom (LSE: TALK),which piggybacks some of BT’s old networks and raised its last payout by 16%. This share yields about 3.8%.

And there’s Inmarsat (LSE: ISAT), which provides satellite broadband services to ships and lifted its latest dividend by 5%. The forecast yield here is around 4.1%.

In comparison, Vodafone expects to raise its forthcoming dividend by 8% and yields a possible 4.7% at present.

From these (admittedly cursory) figures, it seems to me the best mix of dividend growth and high income from the Telecoms sector is…

…er, Vodafone. Indeed I am sure a fair chunk of the £50 billion will find its way back into the slimmed-down business.

But if you’re looking to diversify away from Telecoms with your Vodafone proceeds, you do not have to look far down the FTSE 100 to find other juicy incomes.

For instance, mega-oils Royal Dutch Shell and BP yield approximately 4.8% and 5.0% respectively based on current estimates for this year.

Elsewhere, HSBC offers 4.8%, AstraZeneca provides 4.5% while Imperial Tobacco gives 5.4% on current City forecasts.

Other blue-chip names you may wish to consider include Admiral, BAE Systems, Pearson, SSE and William Morrison Supermarkets, which yield 6.5%, 4.9%, 4.3%, 6.2% and 5.3% respectively.

The average of those ten names is just over 5%.

Of course, where you invest your Vodafone payout is something that only you can decide.

But whatever you do, I wouldn’t dither for long with the cash. On the contrary, I say look to reinvest it as soon as you can.

That way, you’ll stand a better chance of compounding your Vodafone profit than you would by letting your money sit idly in the bank earning no interest.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

> Maynard does not own any share mentioned in this e-mail. The Motley Fool has recommended shares in William Morrison Supermarkets.

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