LONDON -- What do you think is best to go for in these tough times, dividends or share price growth?
Ace investor Neil Woodford is renowned for investing in good dividend-paying shares, as you can see if you get yourself a free copy of The Motley Fool report "8 Shares Held By Britain's Super Investor," which examines a few of the sectors that Woodford has invested in.
But if you buy such shares when they're cheap, there's a good chance you'll get decent share price growth into the bargain, too. And that's exactly what Neil Woodford and other investors who bought Vodafone (LSE: VOD.L ) shares alongside him have been enjoying.
In fact, Vodafone shares hit a 52-week high on Wednesday, peaking at 184.9 pence, before settling back to 181 pence today. And from the 103 pence depths of 2008, the shares are up around 75%, rising 12% in the past 12 months. That's a decent steady share price appreciation, I reckon.
But what about the dividends?
Even after that solid share price performance, full-year forecasts for the year ending March 2013 put the shares on a prospective dividend yield of a massive 7.1%, with a price-to-earnings ratio of a modest 11. And for 2014, the forecast yield rises to 7.4%.
Vodafone's longer term dividend trend looks like this...
|
Year
|
Dividend
|
Increase
|
Yield
|
| 2008 |
7.51 pence |
- |
5% |
| 2009 |
7.77 pence |
3.4% |
6.3% |
| 2010 |
8.31 pence |
6.9% |
5.5% |
| 2011 |
8.90 pence |
7.1% |
5% |
| 2012 |
9.52 pence |
6.9% |
5.5% |
| 2013 (estimate) |
12.9 pence |
36% |
7.1% |
| 2014 (estimate) |
13.6 pence |
5.4% |
7.5% |
To me, that makes the shares look cheap now, even though they have just reached a 52-week high. At the time of its last results announcement, Vodafone reiterated its plan to raise its dividend by at least 7% per year, so we should be set for more of the same for some years to come.
The rest of the sector
But it's not just Vodafone. Take a look at the following table showing forecast dividends for a few other telecoms operators...
|
Company
|
Dividend 2013
|
Yield
|
Dividend 2014
|
Yield
|
| BT (LSE: BT-A.L ) |
10.1 pence |
4.7% |
11.3 pence |
5.2% |
| TalkTalk (LSE: TALK.L ) |
10.2 pence |
5.5% |
11.8 pence |
6.3% |
| KCOM (LSE: KCOM.L ) |
4.5 pence |
6.2% |
5.9 pence |
8.1% |
| Telecom Plus |
30.3 pence |
3.5% |
33.5 pence |
3.9% |
Increasingly, the telecom companies are publishing plans for steady dividend increases, like BT, which has told us it expected dividends to be increased by 10%-15% annually for the next three years, and KCOM, which aims to raise its dividend by at least 10% per year.
All told, this looks like a cheap sector to me, with Vodafone being the clear leader -- but I must say I like the look of KCOM, too.
And I reckon there are other cheap sectors out there, too, like the FTSE's big housebuilders. If you want some more ideas for bargain sectors right now, you might benefit from getting a copy of the free Motley Fool report "Top Sectors for 2012," which identifies three more that Motley Fool analysts think are cheap.
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