Is Vodafone Group plc still a buy after FY results?

Bilaal Mohamed reviews today’s full-year results from Vodafone Group plc (LON:VOD).

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When asked to name a FTSE 100 company, one of the firms that immediately springs to people’s minds is Vodafone (LSE: VOD). Valued at over £58bn, the mobile telecoms giant is one of the world’s largest telecommunications firms, providing a wide range of services including voice, messaging and, increasingly, data across both mobile and fixed networks.

Firm favourite

The Newbury-headquartered group remains a firm favourite with investors thanks to its low-risk profile and generous dividend payouts. But in recent years the sustainability of these payouts has been called into question, with the group’s earnings unable to keep up with its rising dividends. If anything it makes this morning’s full-year results all the more interesting.

For the year ending 31 March the group reported a 4.4% decline in revenues to €47.6bn, with full-year organic service revenues up by 1.9%. But the standout figure was the massive €6.1bn loss it suffered, largely due to its troubled Indian operations, which it is now spinning off. Earlier this year the company reached an agreement to merge Vodafone India with Idea Cellular, one of the country’s leading mobile network operators.

Dividend hike

But there were also plenty of positives, with organic adjusted earnings (before interest, tax, depreciation, and amortisation) rising 5.8% to €14.1bn, and second half adjusted earnings up by 6.3%. Free cash flow for the year was reported at €4.1bn, with this figure expected to rise to €5bn during the current fiscal year to March 2018.

Management also announced its intention to pay a final dividend of 10.03 euro cents per share, up 2% on the previous year, leaving the total payout for the year at 14.77 cents, also up 2% year-on-year. The market reacted positively to the announcement with Vodafone’s shares up by around 4% in early trading.

I believe that Vodafone’s management will continue to do its utmost to fulfil its promise to raise the dividend payouts year-on-year. A prospective dividend yield of 6.2% should keep income seekers happy for the time being, and that in itself should help to support the share price over the medium term at least.

Upward trend

For those seeking a little more than just dividends, perhaps a more exciting alternative to Vodafone could be Telecom Plus (LSE: TEP). The FTSE 250-listed group, which owns and operates the Utility Warehouse brand, is the UK’s only fully integrated provider of a wide range of utility services spanning both the Communications and Energy markets.

In its latest trading update the group said that both customer and service numbers for the full year to the end of March had shown modest growth, with an encouraging upward trend starting to emerge during the final quarter.

Better quality customers

Over the past couple of years the company has also seen the proportion of new members who are switching all their services to the Utility Warehouse brand rise from around 30% to 55%. These are regarded as better quality customers given their higher expected lifetime value.

With a prospective yield of 4.2% currently on offer, Telecom Plus remains a buy for steady long-term growth and a rapidly rising dividend.

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.

Bilaal Mohamed has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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