The poor performance of the European economy has dragged on Vodafone(LSE: VOD) in recent years. The telecoms company has recorded a fall in earnings in each of the last two financial years, with a further decline of 11% expected in the current financial year too. As such, many investors may view its pivot to Europe as a bad move that has hurt its long-term outlook.
While this may be true in the short run, Vodafone continues to offer excellent long-term prospects. The sale of its stake in Verizon Wireless and the purchase of discounted assets in Europe could help to boost its long-term profitability, with Vodafone's bottom line expected to return to positive growth as soon as next year. In fact, Vodafone is due to report a rise in earnings of 22% in the 2017 financial year, followed by a rise of 28% in the following year. This has the potential to improve investor sentiment in the company and send its shares higher.
As well as capital gain potential, Vodafone also offers bright income prospects. It yields 5.3% at the present time and with the company's financial performance set to improve as the Eurozone implements a major quantitative easing programme, it seems to be an excellent income stock to buy right now.
Also offering superb long-term income potential is utility company SSE(LSE: SSE). Its yield is among the highest in the FTSE 100, with it currently standing at 6.1%. While other FTSE 100 companies also yield over 66%, few have the resilience and defensive characteristics of SSE. It offers low volatility and with uncertainty surrounding the outlook for the global economy and FTSE 100 being high, it could outperform the wider index over the medium term.
In addition, SSE also offers a relatively safe dividend since it has a very stable business model. This means that the chances of a dividend cut are slim, with SSE having a healthy dividend coverage ratio of 1.25. As such, dividends are likely to rise by at least as much as inflation in future, thereby providing the company's investors with a good chance of a real-terms increase in their income in future years.
Dividend growth potential
Meanwhile, education specialist Pearson(LSE: PSON) may not offer the same level of stability as SSE, but its prospects for dividend growth are high. That's because its new strategy appears to be sound and has the potential to turn the performance of the business around after a highly challenging period.
For example, Pearson is forecast to increase its bottom line by 12% next year and this puts it on a price-to-earnings growth (PEG) ratio of 1.2. This indicates that there's capital gain potential on the cards, while Pearson's dividends are expected to be maintained at their current level. This puts the company on a yield of just over 6%.
This combination of growth, value and income appeal could prove to be a potent one, making Pearson a highly appealing buy for the long run - especially for investors seeking impressive dividend growth potential.
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Peter Stephens owns shares of SSE and Vodafone. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.