Investing in UK shares can be very lucrative or, in some circumstances, can lead to large losses. As a result, it’s important to be discerning when picking stocks. Airtel Africa (LSE: AAF) is one stock I believe has significant potential. In fact, through dividend reinvestment over a number of years, I actually believe that it could be a millionaire-maker! Here’s why.
Both a growth and income share
Airtel Africa is a provider of telecommunications and mobile money service within Africa. Africa is seen as a high-growth market, and as a market leader in 14 different African countries, Airtel Africa should be able to continue to grow its customer base. The number of customers already stands at over 100m, and with only 45% of the continent’s population owning a SIM, this should continue to grow. A rising consumer base has also seen rising profits. In fact, in the 2020 financial year, operating profits increased by over 20% to $901m.
But as well as the potential for growth, this UK share is also a very good income stock. For example, this year, the firm is paying a dividend of 6 cents per share. This equates to a 10% yield. At the moment, this dividend also looks very safe due to free cash flow of $453m. With the dividend costing $226m, this means that there is still cash left over to reinvest into the business. Consequently, with strong prospects for growth, a dividend cut does not seem likely, and increases may be in store further down the line.
Are there any problems?
Of course, there are no perfect shares, and Airtel Africa is no exception. One of my major concerns is the fact that its EPS (earnings-per-share) has actually been decreasing in recent years. This is mainly because the firm has issued more shares in order to pay off debt. While paying off its large debt-pile has been necessary, this share dilution does put a strain on the share price. As a result, now that its debt situation is much healthier, I hope that the firm will not have to resort to issuing more shares in the near future. Instead, buying back shares would be the ideal situation for shareholders.
Airtel Africa will also be affected by the current economic downturn. This is because currencies have been devalued across many of its markets, including the Nigerian naira, the Ugandan shilling, and the Zambian kwacha. This will place a burden on profits throughout the year.
Is this UK share really a millionaire-maker?
Despite these problems, I’m still highly optimistic about Airtel Africa. Evidently, there is significant room for profits to grow further, especially through the data and Airtel Money divisions. The dividend is also a major attraction, especially as it does look sustainable. As such, through reinvesting these dividend payments into the stock, I really do think that this UK share is a millionaire-maker!
Stuart Blair owns shares in Airtel Africa. 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.