Quad-play bundles are all the rage in the multimedia sector right now with companies fighting each other to offer the best package to customers.
With a war like this going on, investors need to be prepared and a well-diversified portfolio of the industry’s biggest players, Vodafone (LSE: VOD), BT (LSE: BT-A) and SKY (LSE: SKY), looks to be the best way to go.
Plenty of ways to profit
Vodafone, BT and Sky are the three largest companies that give investors access to every sector of the UK’s multimedia market. What’s more, Vodafone offers exposure to emerging markets and Sky now has a large presence within Europe.
It would be fair to say that Vodafone, Sky and BT all have their strengths and weaknesses, which is why the trio works well as a group.
Vodafone, for example, is not the largest mobile provider in the UK but the company has a huge, and growing, presence within Europe as well as India and South Africa.
Additionally, the company offers one of the most attractive dividend yields around. At present Vodafone supports a dividend yield of 4.9%, although the payout isn’t covered by earnings per share.
Similarly, BT will soon become the UK’s largest mobile provider after acquiring EE, in a deal that values the mobile network at £12.5bn. The merger will give BT control over EE’s near-to 25m customers, in addition to its current 18m TV, broadband, landline and broadband customers, cementing BT’s position as the UK’s premier multimedia company.
However, BT does have its weaknesses. These weaknesses include a large pension deficit and rising debt pile, as well as competition worries.
And BT’s main competitor is Sky. The two companies are fighting over pay-tv customers, although Sky’s recent £6.9bn acquisition of its European sister companies, Sky Italia and Sky Deutschland, has given the Sky group a European advantage over BT.
Still, BT’s and Sky’s battle over pay-tv customers will come to a head this year as the two groups fight over the rights to televise the English Premier League.
Around 57% of Sky’s content is sport, so the company needs to retain these rights to maintain its current offering. Unfortunately, BT is well aware how important these rights are to Sky, so BT is planning to spend billions trying to snatch these rights away. Sky is unlikely to let BT win easily.
Overall, the fight between BT and Sky is too close to call. That’s why the best way for investors to profit is to use a basket approach, buying both companies as well as Vodafone.
There’s no denying the fact that Sky and BT are expensive but when combined with Vodafone they make a perfect, defensive dividend portfolio. BT currently trades at a forward P/E of 13.1 and is set to support a dividend yield of 3.2% next year. Meanwhile, Sky currently trades at a forward P/E of 15.8 and is set to support a dividend yield of 3.7% next year.
