What Should Vodafone Group plc Shareholders Do With Their Verizon Windfall?


Vodafone Group’s (LSE: VOD) (NASDAQ: VOD.US) shareholders are set to receive a cash windfall equivalent to 102p per ordinary Vodafone share, split between 72p in Verizon common shares and 30p in cash following Vodafone’s sale of its share in Verizon Wireless to partner Verizon Communications

But the question is where should Vodafone’s investors stash this new found wealth? Well, even though the FTSE 100 is trading within inches of its all-time high, there are still plenty of attractive looking investments out there. 

Income seeker

For the income seeker there is KCOM Group (LSE: KCOM), a company that has a virtual monopoly over the telecoms market in and around Hull.

As a result, KCOM has all the defensive traits of any other telecoms company, which means that management has been able to commit the company’s 10% annual dividend increases for the next three to four years. That means if you invest now, by 2017 you’ll be receiving an annualised dividend yield of nearly 6% — not bad.

That being said, KCOM’s revenues are starting to slide as the company’s legacy fixed-line telecoms business starts to lose customers to other providers. However, investors need not be worried as KCOM is branching out into the broadband and services markets, both of which offer a higher profit margin than the traditional fixed-line business. As a result, KCOM’s net income has nearly doubled over the past four years, making dividend commitments look achievable. 

Long-term energy play

The world is always looking for new oil & gas reserves and once they have been found, someone needs to help get them out of the ground. This is where Petrofac Limited  (LSE: PFC) steps in. Petrofac has been sold off over the last year due to investor concerns the company’s profit margins, especially in onshore engineering & construction business are one the decline. The market has also expressed concerns over Petrofac’s entry into the high-risk subsea market.

Nonetheless, this sell-off has put Petrofac in an interesting position. For example, the company is now trading at a valuation around 10% lower than some of its international peers. What’s more, it would seem as if the recent concerns over Petrofac’s future growth are unwarranted as the company continues to win multi-billion dollar contracts with clients around the world. Additionally, City analysts believe that’s Petrofac entry into the subsea market, far from being a liability could actually be highly lucrative for the company if it targets the Asian market, which lacks any real competitors.

Whatever happens though Petrofac’s order backlog is expanding and the company’s current discount to peers appears to be unfounded. 

The growth and income seeker

For investors seeking both income and growth, one of the worlds biggest bank’s, HSBC Holdings plc  (LSE: HSBA) looks to be your best bet.

The most attractive quality about HSBC is the bank’s impressive cash generation, which has led many City analysts to speculate that a return of capital could be on the cards for shareholders in the near future. In particular, during 2012 HSBC’s free cash flow was in the region of £13bn, giving HSBC enough cash in the space on one year to buy Sainsbury’s twice over. 

On the growth side of things, HSBC’s earnings are set to expand 20% over the next two years and when it comes to income, HSBC already offers a 4.7% dividend yield, which is well covered by earnings. Additionally, the bank’s valuation is attractive, it’s is currently trading at a forward P/E of 11 and the bank is well capitalised with a solid Tier one capital ratio of 13.3% so there are likely to be no funding issues.

Other opportunities

Still, if you don't find this advice useful, there are plenty of other opportunities in the market you can take advantage of right now.

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> Rupert owns shares in Petrofac. The Motley Fool has recommended shares in KCOM Group and owns shares in Petrofac.