Please ensure Javascript is enabled for purposes of website accessibility

Why Vodafone Group Beats BT Group

By Alan Oscroft - Apr 4, 2013 at 4:10PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Vodafone Group ousts BT Group in the battle of the telecom giants.

LONDON -- Over the coming weeks, I'll be taking a look at the biggest and best companies in the various FTSE 100 sectors. Today it's telecoms, and that means just two big players -- Vodafone (VOD 0.34%) (VOD 1.22%) and BT Group (BT.A -0.66%) (BT).

Here's a quick summary of some fundamentals:

Vodafone

Year to March

EPS

P/E

Dividend

Yield

Cover

2008

12.56 pence

12

7.51 pence

5%

1.7 times

2009

17.17 pence

7.1

7.77 pence

6.3%

2.2 times

2010

16.11 pence

9.4

8.31 pence

5.5%

1.9 times

2011

16.75 pence

10.5

8.9 pence

5%

1.9 times

2012

14.91 pence

11.5

9.52 pence

5.5%

1.6 times

2013 (forecast)

15.18 pence

12.3

10.35 pence

5.5%

1.5 times

2014 (forecast)

16.50 pence

11.3

10.82 pence

5.8%

1.5 times

2015 (forecast)

17.52 pence

10.6

11.08 pence

5.9%

1.6 times

That steadily rising dividend is nice, and the consistently high yield suggests the share price has not kept pace with the true valuation of the company.

High dividends aren't guaranteed, and a company might have to cut its payout if earnings are not sufficient. And to that end, it's perhaps a little concerning that Vodafone's dividend cover has fallen a little. But forecasts suggest it is stabilizing.

BT

Year to March

EPS

P/E

Dividend

Yield

Cover

2008

23.90 pence

9.1

15.8 pence

7.3%

1.5 times

2009

16.00 pence

4.9

6.50 pence

8.3%

2.5 times

2010

17.30 pence

7.2

6.90 pence

5.6%

2.5 times

2011

21.00 pence

8.8

7.40 pence

4%

2.8 times

2012

23.70 pence

9.6

8.30 pence

3.7%

2.9 times

2013 (forecast)

24.95 pence

11.2

9.43 pence

3.4%

2.6 times

2014 (forecast)

25.34 pence

11.0

10.67 pence

3.8%

2.4 times

2015 (forecast)

27.01 pence

10.3

12.09 pence

4.4%

2.2 times

BT has been recovering well since 2009, but though it is growing earnings quite nicely, dividend yields have been falling.

Which is best?
BT's third-quarter figures saw revenue fall by 6%, and some of that is because BT is mainly dependent on just one market -- around three-quarters of its business is done in the U.K., where competition is strong and saturation levels are high.

Vodafone, on the other hand, gets only around 12% of its turnover from the U.K., has a good presence in the developing market of India, and holds a 45% stake in Verizon Wireless in the US.

About 10% of BT's turnover comes from Europe (excepting the U.K.), whereas Vodafone gets close to 60% of its revenue from the wider eurozone area. That greater international clout helps Vodafone in capturing multinational contracts -- like the recent deal to supply Germany'sThyssenKrupp, and a new partnership with Poland's Polkomtel.

Elephants
There are elephants in both these rooms. For BT, it's that massive pension fund, which is going be a millstone round the company's neck for decades -- in fact, BT is often described as a pension fund manager that has an interest in phones on the side. The worst days of the deficit during the stock market slump are behind us -- but what will happen in the next bear market when assets values fall again?

For Vodafone, we have the repeatedly raised and denied rumors of a merger or a takeover with or by some combination of Verizon Communications and AT&T -- or maybe a buyout of its stake in Verizon Wireless.

The big difference is that if Vodafone's elephant comes home to, erm, roost, it would almost certainly be at a nice price for shareholders.

Vodafone is my pick of the sector -- and if you do your own research, you might agree.

Finally, if you're looking for investments that should take you all the way to a comfortable retirement, I recommend the Fool's special new report detailing five blue-chip shares. They'll be familiar names to many, and they've already provided investors with decades of profits.

But the report will only be available for a limited period, so click here to get your hands on these great ideas -- they could set you on the road to long-term riches.

link

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Vodafone Group Plc Stock Quote
Vodafone Group Plc
VOD
$14.92 (1.22%) $0.18
BT Group Stock Quote
BT Group
BT.A
$179.60 (-0.66%) $-1.20
BT Group Stock Quote
BT Group
BT
Vodafone Group Plc Stock Quote
Vodafone Group Plc
VOD
$118.46 (0.34%) $0.40
Verizon Communications Inc. Stock Quote
Verizon Communications Inc.
VZ
$49.10 (0.43%) $0.21
AT&T Inc. Stock Quote
AT&T Inc.
T
$20.21 (-0.10%) $0.02

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
327%
 
S&P 500 Returns
116%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/19/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.