But if you only have room for one of these two income stocks in your portfolio, which one should you chose?
On one hand, National Grid has a monopoly over the UK energy transmission market. This gives the company a stable,andpredictableincome stream to support the dividend payout.
On the other hand, Vodafone has a broad international presence, with exposure to markets like Africa and India. However, Vodafone is struggling to compete with an increasing amount of competition and changing consumer habits.
Slow and steady
National Grids business, the transmission of electricity around the UK, is essential, but its hardly exciting.
That being said, more often than not boring but essential businesses make the best long-term investments.
And long-term development is the name of the game for National Grid. The companys management works to a ten-year development plan, which isupdated and republished every decade. There arent many other companies that take such a long-term approach. National Grids ten-year plan keeps the groups development on track and allows all of the companys stakeholders to see what management is working towards.
Unfortunately, Vodafone is unable to commit to the same kind of long-term outlook. The telecoms industry is changing rapidly, and competition is increasing. Moreover, as customers move away from traditional services, such as text voice messaging, towards free messaging and data packages, margins are coming under pressure.
Still, Vodafones growth is set to gain traction over the next few years. The companys hefty infrastructure investments within Europe should start paying off by 2017. Sales growth in emerging markets will also boost the bottom line.
Over the next three years to 2017, Vodafones earnings per share are set to increase by a total of 14%. Over the same period, National Grids earnings per share are only set to expand by a total of 7%.
Nevertheless, when searching for the best dividend stocks it always pays to seek out stability over growth. And when it comes to earnings stability, National Grid is the undisputed champion.
For example, according to City analysts Vodafones earnings are set to collapse by 63% this year and fall a further 4% next year before rebounding by 19% during 2017. In comparison, National Grids earnings are set to fall by 16% this year but then push steadily higher by 4% during 2016, and 3% in 2017.
The better yield
So, National Grids slow and steady outlook makes the company the better dividend pick of the two.
At present levels, National Grids dividend yield currently stands at 4.7% and the payout is covered one-and-a-half times by earnings per share. The dividend payout is set to rise in line with inflation over the next three years.
Vodafones dividend yield currently stands at 4.8%, although the payout isnt covered by earnings per share. Just like National Grid, Vodafones payout is set to rise in line with inflation over the next three years.
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