3 Telecoms With Better Prospects Than Vodafone Group plc: KCOM Group PLC, Talktalk Telecom Group PLC And Daisy Group PLC

Last week, for the first time in its history, Vodafone  (LSE:VOD) (NASDAQ: VOD.US) lost the support of the City.

vodNow, more analysts are doubtful about Vodafone’s future than ever before and it’s becoming clear that the company is struggling.

So, in an attempt to turn itself around, Vodafone has pinned its hopes on ‘Project Spring’, a massive £19bn infrastructure programme. The project is designed to boost the company’s appeal to customers. However, some are starting to suspect, that Project Spring may not yield the results Vodafone desires.

With that in mind, it could be time to turn your back on Vodafone. Here are three companies with brighter prospects. 

Business market

Daisy (LSE: DAY) has transformed itself over the past five years. The company has grown through bolt-on acquisitions and is now a key player within the UK’s small and medium-sized enterprises telecoms market.

After years of growth through acquisitions, Daisy is now cash-generative and looking to grow organically by cross-selling its services. Looking at Daisy’s past achievements, I’m excited about the company’s prospects.

Indeed, management has built up an excellent track record of adding value through acquisitions. The past few years have seen Daisy achieve scale, diversify into more attractive markets and extract cost saving synergies from acquisitions.

It is likely that the company will continue to do what it does best: drive revenue growth, increase cash flow and continue expand within the UK’s business telecoms market. There have been several rumours that Daisy will become a bid target by Vodafone itself.

Daisy currently supports a 3.4% dividend yield. 

Cash cow 

Second on my list is KCOM (LSE: KCOM). I’ve sung KCOM’s praises several times before and the company, as of yet, has not let me down. 

Full-year 2013 results were released on the 6th of June and showed that KCOM still has plenty of gas left in the tank. Although the company reported that revenue for the period dropped 0.6%, the sale of higher margin services and a rise in the average revenue per user, pushed earnings per share higher by 2%. Cash inflow from operations rose 42% during the period. 

As promised last year, KCOM’s management hiked this year’s dividend payout a further 10%. Management has stated that payout increases of 10% per annum are on the cards for the next two years.

At present, KCOM supports a dividend yield of 5.3%.

National disruptiontalktalk

Talktalk Telecom (LSE: TALK) is my third and final pick.

Rather than a pure telecoms play, TalkTalk is more of a media giant, much like Sky or BT and business is booming.

The company reported that during the fiscal third quarter, it added 175,000 net new TV customers, helped by the success of TalkTalk’s new Essentials package, with continued strong demand for Plus TV.

Additionally, during the quarter the number of new customers taking up fibre-optic broadband grew by 35,000. New mobile customers were also added, with 24,000 customers signing up following strong promotional activity.

But that’s not all. Talktalk is spending £86m to grow its TV, mobile and fibre bases. Including the roll-out of CityFibre, an ultra-fast broadband service launched in conjunction with Sky. The roll out will give Sky, TalkTalk and CityFibre the opportunity to test a new cost effective approach to building a viable pure fibre network.

At present TalkTalk supports a 3.7% dividend yield. Management has stated that the company is targeting a 15% per annum dividend hike for the foreseeable future.

Running out of time

There is no way to sugar-coat it: Vodafone is struggling, it’s as simple as that.

However, only time will tell if the company’s ‘Project Spring’ will help boost earnings and allow the company to push ahead of its peers. The project is a big multi-billion pound gamble, and things could get even worse for Vodafone if this spending does not pay off. 

Specifically, Vodafone only generated £6.2bn in cash from operations during 2013, while the dividend payout cost £5bn. This does not leave much room for error at all.

Still, as of yet the company's dividend is well covered but it always helps to be prepared and well-constructed dividend portfolio creates wealth steadily, while still allowing you to sleep like a baby.

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Rupert owns shares in Kcom. The Motley Fool has recommended shares in British Sky Broadcasting and Kcom.