How One Should Be Looking at Telecom Shares as Vodafone (LON: VOD) Keeps Paying Out Dividend?

Summary

• Vodafone announced an interim dividend of 4.50 eurocents per share during the release of first half of 2021 results
• The commercial services built the momentum in the first half, and it delivered 5G through strong network sharing.
• The telecom sector is comparatively doing well than other sectors like travel and hospitality 

Technology has been aiding our lives throughout the lockdown cycles. Technology businesses had witnessed comparatively lower impact of the economic fallout of the pandemic. Instead, the pandemic has led to an increased reliance on technology for our daily activities.

For instance, the telecom services have helped us remain connected with our friends & families through seamless connectivity during the darkest hours that one might come across in a lifetime. The telecom services have been up and running, connecting the remotest of areas without any disruption. Moreover, the reliance and usage of internet has increased manifolds during the unprecedented crisis. The internet has become a necessity for remote working, online classes, ordering groceries, home entertainment, socialising with people, and shopping. With a second lockdown in place, the usage of telecom services is bound to increase.

Also read: Dividend Yielding Stocks- GSK, Vodafone, and Imperial Brands

The telecom sector is comparatively doing well in comparison to other sectors. Investors are watching the technology stocks closely. The telecom stocks, by many, are still seen as best bets in terms of FTSE 100's most reliable dividend payers in contrast to other income stocks.

There is a sense of joy in the markets among the dividend seeking investors as Vodafone Group Plc (LON: VOD) has declared dividend despite the challenges it came across in the trading environment. The company has announced an interim dividend while releasing its H1 of 2021 results, which stood at 4.50 eurocents per share.

Vodafone Group has been able to generate profits during the first half of 2021 despite a substantial decrease in roaming revenue, which was affected by travel bans and lockdown restrictions. This has allowed the company to pay dividends to their shareholders. Last year, in a historic move, the FTSE 100 listed telecom giant slashed dividend payments as the company was struggling with a great amount of debt on its balance sheet.

The international travel lockdown restrictions during the first half of 2021 led to lower roaming revenues for Vodafone, which resulted in a decline of revenue by 2.3 per cent to €21.4 billion. However, the telecom giant had witnessed strong growth for its fixed-line broadband connections along with increased customer loyalty.

In addition, Vodafone has managed to deliver 5G services efficiently through network sharing and optimising its cost structure.

The rising debt for the company along with fierce competition across the industry has impacted the share prices of the company as they remain at their lowest level since the last two decades.

Vodafone Group delivered a strong performance during the H1 of 2021 and reported a profit of €1.6 billion. Going forward the company is confident about the full-year outlook for the remaining part of the year.

The commercial services built the momentum in the first half, and it delivered 5G through strong network sharing. The fixed line broadband base, digitalisation and customer loyalty grew during the H1 of FY 2021. Vodafone believes that the demand for its services are growing and its long-term strategy could help the company in achieving its next leg of growth along with generating steady returns for its shareholders.

(Source: Company’s filings, LSE) 

Huawei, being the cheapest provider of 5G services, has been cornered in UK due to US-China row. This opened a huge opportunity for Vodafone and other telecom players in the country to capture the market share in the 5G services domain. Vodafone has launched 5G services across nine of its European markets in more than 120 cities.

On 20 November, Vodafone shares last traded at GBX 123.18. Vodafone’s market capitalisation stood at £ 32,643.89 million. The company’s shares were down around 19 per cent in a year’s time.

Earlier this year, BT Group Plc (LON: BT.A) slashed its dividend payments to fibre up rural households the UK. After posting positive results for the first half of 2021, the company plans to reinstate the dividend from next year. The company has rolled out 5G services in more than 100 cities and towns and the 5G-ready customer base now stands at over 1 million.

On 20 November, BT Group shares last traded at GBX 122.30. BT Group’s market capitalisation stood at £12,693.79 million. The company’s shares were down by over 34 per cent in a year’s time.

There has been significant impact of the pandemic on the telecom sector with considerable rise in usage of data for work and leisure. The travel restrictions and cancellation of industry events resulted into sharp rise in demand for mobile communication. The telecom shares though have also undergone significant amount of price correction and the industry dynamics hint steady recovery.