Trade idea of the day: Buy Vodafone

Is there a case to buy Vodafone prior to its Q4 results release on Thursday?

Finding a company that offers a solid dividend yield and growth opportunity is very challenging. This is because stocks with strong earnings growth often reinvest most of the profits in order to assure strong earnings growth going forward. As a result, they usually pay very little out in dividends, with investors instead holding out for higher future earnings growth.

However, Vodafone appears to be an exception. It ticks the right boxes to offer traders the best of both worlds. It has a 5.7% dividend yield and is expected to report solid earning growth in 2018 and 2019. Furthermore, with strong earnings, any possibility of a dividend cut is markedly reduced. 

 Vodafone has been successfully implementing an acquisitions strategy, which has recently seen it acquire Kabel Deutschland and Spain’s Ono at a discount to intrinsic value. These acquisitions could not only boost profitability over the longer term but are also serving to strengthen Vodafone’s overall structure. 

Vodafone share price has rallied over 10% across the last 12 months, outperforming the market as the FTSE has risen just 6.7% over the same period. Yet despite the rally that Vodafone has experienced, the telecoms giant could still have further to go. The share price has pulled back from its 18-month high of 337p earlier this month and hit a 7 week low in the previous session. This recent pull back to 224.5p could provide a good buying opportunity ahead of the final quarter release on Thursday. 

 UBS recently reiterated a buy rating on Vodafone and set a price target for 285p. Royal Bank of Canada have also upped its price target to 275p.

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