If youre looking for income,Vodafone(LSE: VOD) could be your best bet. The companys dividend yield currently stands at 4.8% andthis payout is set to rise in line with inflation over the next three to four years.
However, Vodafones growth days are behind it. Indeed, the company has now become so big that steady earnings growth of around 5% per annum is now the norm, although as competitors eat away at Vodafones market share, the company is struggling to grow at all.
On the other hand,Vodafones smaller peer Talktalk Telecom(LSE: TALK) is one of the markets fastest growing companies.
Telecoms can be considered to be one of the markets most defensive industries, which makes it perfect for the risk-adverse investor. Defensive stocks tend to outperform during times of market turbulence and they often offer a higher dividend yield than many of their peers something thats extremely attractive in the current interest rate environment.
Vodafone has all of these qualities but, as noted above, lacks growth. Thats where Talktalk comes into play.
As a provider of telecommunications services, Talktalk has many defensive traits but the company is still growing rapidly. According to City analysts the companys earnings per share are set to leap higher over the next three years.
Earnings growth of 44% is expected this year, followed by growth of 72% during 2016 and growth of 37% is slated for 2017. All in all, Talktalks earnings are set to grow 140% by 2017 thats growth worth paying for.
On top of this growth, Talktalk currently supports a dividend yield of 3.4%. The payout is set to rise around 10% per annum for the next three years and on that basis, if you brought Talktalk shares today, youd be receiving a yield of 5% by 2017. Not bad for a growth stock.
Unfortunately, Talktalk isnt cheap. Investors are willing to pay a premium to get their hands on the companys shares.
At present, Talktalk trades at a forward P/E of 38.8, which looks expensive. However, when you factor in Talktalks projected growth, the company is trading at a PEG ratio of 0.9 indicating growth at a reasonable price.
In comparison, City analysts believe that Vodafones earningswill only grow by around 4.7% per annum over the next three years. Overall, Vodafones earnings are expected to expand by 14% between now and 2017 nothing to get excited about.
Nevertheless, Vodafones defensive nature means that its the perfect stock to build your portfolio around. And when combined with Talktalk, the duo offers both an attractive level of income as well as the potential for capital growth.
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