Why Vodafone Group Plc Beats BT Group Plc

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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 (LSE: VOD) (NASDAQ: VOD.US) and BT Group (LSE: BT-A) (NYSE: BT.US).

Here's a quick summary of some fundamentals:

Vodafone

Year to MarchEPSP/EDividendYieldCover
2008 12.56p 12 7.51p 5.0% 1.7x
2009 17.17p 7.1 7.77p 6.3% 2.2x
2010 16.11p 9.4 8.31p 5.5% 1.9x
2011 16.75p 10.5 8.9p 5.0% 1.9x
2012 14.91p 11.5 9.52p 5.5% 1.6x
2013 (f) 15.18p 12.3 10.35p 5.5% 1.5x
2014 (f) 16.50p 11.3 10.82p 5.8% 1.5x
2015 (f) 17.52p 10.6 11.08p 5.9% 1.6x

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 stabilising.

BT

Year to MarchEPSP/EDividendYieldCover
2008 23.90p 9.1 15.8p 7.3% 1.5x
2009 16.00p 4.9 6.50p 8.3% 2.5x
2010 17.30p 7.2 6.90p 5.6% 2.5x
2011 21.00p 8.8 7.40p 4.0% 2.8x
2012 23.70p 9.6 8.30p 3.7% 2.9x
2013 (f) 24.95p 11.2 9.43p 3.4% 2.6x
2014 (f) 25.34p 11.0 10.67p 3.8% 2.4x
2015 (f) 27.01p 10.3 12.09p 4.4% 2.2x

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 revenues 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 UK, where competition is strong and saturation levels are high.

Vodafone, on the other hand, gets only around 12% of its turnover from the UK, 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 UK), whereas Vodafone gets close to 60% of its revenues from the wider eurozone area. That greater international clout helps Vodafone in capturing multinational contracts -- like the recent deal to supply Germany's ThyssenKrupp, 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 rumours 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.

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