3 Fantastic Reasons Why Vodafone Group plc Is Set To Surge


Today I am looking at why I believe shares in Vodafone (LSE: VOD) (NASDAQ: VOD.US) are ready to drive higher.

Massive capex set to drive growth

Vodafone is chucking vast amounts of capital towards its multi-pronged plans to generate future growth, and lifted investment into its Project Spring organic programme by £1bn to £7bn back in November. The scheme is primarily designed to boost its 3G and 4G networks over the next couple of years, turning around its flagging fortunes in Europe and boosting its operations in emerging markets.

Meanwhile, Vodafone’s sizeable cash pile has also raised speculation that the firm could engage in fresh acquisition activity in the near future. More recently, the business has been tipped as a potential bidder for British Sky Broadcasting in order to boost its exposure to the lucrative ‘triple-services’ entertainment market.

Vodafone made its first foray into this area with the purchase of Kabel Deutschland last year, also giving the business fantastic cross-selling opportunities for its mobile packages.

Takeover talk still on the cards

Vodafone has been the subject of constant takeover chatter in recent months, exacerbated by the sale of its 45% stake in Verizon Wireless back in September for $130bn. So news last week that potential suitor AT&T — thought to be at the forefront of the race — had ruled itself out of the running for at least six months came as something of a surprise.

Still, this does not crush the possibility of the American telecoms giant returning in the future. Besides, AT&T is far from the only interested party in acquiring Vodafone’s lucrative assets, with a number of operators across Asia also mooted to be readying a bid. In my opinion a move for Vodafone remains a very real possibility in the coming months, with M&A action across the global telecoms sector tipped to hot up.

A dependable dividend pick

Vodafone is viewed as a safe pair of hands by dividend hunters, the company lifting the full-year payout at an impressive compound annual growth rate 7% since 2009 even as earnings expansion has wavered during the period.

And City analysts expect the company’s progressive policy to churn out payments of 10.6p and 10.7p per share respectively for the years concluding March 2014 and 2015 respectively, projections which create a chunky 4.7% yield. This blows the forward average of 3.2% for the FTSE 100 out of the water.

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> Royston does not own shares in any of the companies mentioned in this article. The Motley Fool has recommended shares in BSkyB.