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...





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...


Dividend 2013


Dividend 2014


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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