Vodacom, which is set to report a hike of up to 25 percent in headline earnings a share for the six months to September, is regaining interest from investors seeking higher dividend paying stocks, according to analysts.
The jump in headline earnings a share and earnings a share was attributed to strong operational performance and the replacement of a secondary tax on companies with dividend withholding tax.
The sale of part of Vodacom’s subsidiary Gateway Communications had also boosted earnings a share.
Lehlohonolo Mokenela, an industry analyst at Frost & Sullivan, said Vodacom’s growth was driven by data revenues and international operations.
“I expect that we will continue to see the same,” Mokenela added.
“In addition, lower prices are likely to also play a role in driving the performance of the local operations,” he said.
Farai Mapfinya, an equity analyst at Sanlam Private Investments, said while Vodacom and its nearest competitor MTN were both well managed, working largely in Vodacom’s favour was a decision by its management to increase the dividend payout policy to 90 percent in future.
In comparison, MTN’s policy was to pay out 72 percent of its earnings.
However, Vodacom’s dividend yield of 6.7 percent and MTN’s offer of a 5.1 percent dividend yield were considered to be high under the current economic uncertainty.
Yesterday, Vodacom shares gained almost 5 percent or R4.94 to close trade at R108.50 on the local bourse after it also reported in a trading update that earnings a share would rise by between 30 percent and 40 percent during the six months under review.
While it would appear to be a good year for the network operators as smartphones and media tablets in consumer hands and the consumption of data increases, the state of the global market had also played into the hands of these telecoms stocks.
Chris Gilmour, an investment analyst at Absa Investments, said 15 to 20 years ago dividend stocks were less favoured by investors, “now with the markets languishing, dividend yields are coming very much to the fore”.
MTN had evolved into a dividend yielding stock over the past two years as suitably priced, significant acquisition targets were harder to find.
Gilmour said investors still considered MTN cheaper than Vodacom, and they still believed that it offered better value and potential growth.
However, he said Vodacom, in addition to its appeal as annuity income, could leverage its relationship with the UK-based Vodafone for cheaper data, products and promotions.
“It gives them latitude to pick and choose, which MTN doesn’t have, Cell C doesn’t have and Telkom certainly doesn’t have,” Gilmour added.