Should You Buy Vodafone?

LONDON -- Regardless of whether Vodafone  (LSE: VOD  ) (NASDAQ: VOD  ) decides to pursue the acquisition of Kabel Deutschland -- speculation about a deal has shaken the mobile operator's shares in recent weeks -- I believe the London-listed company remains a stellar stock pick.

Vodafone's strategy of grabbing key footholds in exciting growth markets, exemplified by last month's successful 4G auction, plus a generous dividend policy, makes it an attractive proposition for investors.

4G victory bodes well for future growth
Vodafone emerged as the runaway victor in last month's much-awaited 4G mobile auction, an excellent result given the operator is due to launch its 4G service later this year. Some analysts had forecast that the company could have been forced to shell out as much as 1 billion pounds for the rights.

Vodafone purchased 2 x 10 MHz in the 800 MHz band, twice as much as rivals Everything Everywhere and Hutchison 3G, and 2 x 20 MHz in the 2.6 GHz category, plus an extra 25 MHz of unpaired spectrum in the 2.6 GHz band. This leaves the company well positioned to latch onto the exploding market for mobile broadband services, which 4G should enhance.

Elsewhere, Vodafone also inked a five-year accord with defense giant BAE Systems in February to provide companies with security products and services for their smartphones and tablets. This is a relatively new and lucrative area for the mobile operator. The deal will also see Vodafone installed as BAE's preferred network provider in all global regions excluding the US.

A dependable dividend play
Vodafone's progressive dividend policy makes it a star attraction for today's income investors, with the share's yield expected to remain far in excess of the 3.5% FTSE 100 average.

The mobile network giant is expected to carry a gigantic 6.2% yield for the year ending March 2013, which City brokers expect to grow to 6.4% in 2014 and 6.5% the following year.

Although Vodafone does not offer the sturdiest of dividend covers -- this is expected to remain anchored at around 1.5 until the end of 2015 -- the company boasts a solid history of increasing dividends even in times of earnings pressure, providing investors with peace of mind.

Steady earnings growth expected
Analysts expect earnings per share to edge 2% higher during 2013, to 15 pence, before trotting higher thereafter -- growth of 7% and 6%, to 16 pence and 17 pence, respectively, are anticipated in 2014 and 2015.

I believe that Vodafone offers decent value for money at current levels. A P/E ratio of 11 for the current year is expected to fall to 10.3 and 9.7, for 2014 and 2015, respectively. These ratings also compare favorably with an average forward earnings multiple of 12 for the wider mobile telecommunications sector.

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