LONDON -- To me, capital growth and dividend income are equally important. Together, they provide the total return from any share investment and, as you might expect, my aim is to invest in companies that can beat the total return delivered by the wider market.

To put that aim into perspective, the FTSE 100 has provided investors with a total return of around 3% per annum since January 2008.

Quality and value
If my investments are to outperform, I need to back companies that score well on several quality indicators and buy at prices that offer decent value.


So this series aims to identify appealing FTSE 100 investment opportunities, and today I'm looking at Vodafone Group , which is one of the world's largest mobile phone companies.

With the shares at 163 pence, Vodafone's market cap is 79,880 million pounds.

This table summarizes the company's recent financial record:

Year to March

2008

2009

2010

2011

2012

Revenue (millions of pounds)

35,478

41,017

44,472

45,884

46,417

Net cash from operations (millions of pounds)

10,474

12,213

13,064

11,995

12,755

Adjusted earnings per share (pence)

12.56

17.17

16.11

16.75

14.91

Dividend per share (pence)

7.51

7.77

8.31

8.9

9.52

Since its establishment in the early '80s, Vodafone has grown rapidly with the mobile communications market. The company's business model is appealing in that around 81% of its customers prepay for services, 12% are on contract, and the remaining 7% are what it categorizes as "enterprise" customers. The company's ability to get the money in before providing the service is a key strength, and suggests that cash-flow problems, the curse of so many enterprises, are unlikely to cause investors concern here.

As one of the world's largest mobile communications companies, Vodafone provides a wide range of services including voice, messaging, data, and fixed broadband. The scale of operations is huge, with over 407 million customers, 86,000 employees, and activities in over 30 countries. To provide its wireless network, the company has over 243,000 base stations.

Despite its British origins, these days, more than 60% of Vodafone's customers are from emerging markets. Consider that, along with the statistic that 15% of service revenue comes from data transmission (text and Internet, etc.), which has been growing at a 22% annual clip, and it's easy to see potential for increasing total investment returns going forward. Right now, the U.S. is important to the company, providing around 42% of operating profits from the company's stake in Verizon Wireless, the rest coming from around the world, including a 4% contribution from the U.K.

Vodafone's total-return potential
Let's examine five indicators to help judge the quality of the company's total-return potential:

1. Dividend cover: Adjusted earnings covered last year's dividend around 1.5 times. 3/5

2. Borrowings: Net gearing around 37% with borrowings about 2.7 times earnings. 3/5

3. Growth: Revenue and earnings have been growing with strong support from cash flow. 4/5

4. Price to earnings: A forward 10, slightly understating growth and dividend forecasts. 4/5

5. Outlook: Satisfactory recent trading and a positive long-term outlook. 4/5

Overall, I score Vodafone 18 out of 25, which encourages me to believe the company has potential to outpace the wider market's total return going forward.

Foolish summary
With a current yield of about 6.5%, much of Vodafone's immediate total-return potential is in the dividend. Conveniently, cash flow has been strong, which makes the fairly low level of dividend cover feel more comfortable, and helps to manage interest payments on the company's debt. Despite softening recent results from trading in Southern Europe, the directors issued a positive longer-term outlook statement with the recent half-year results, which is encouraging. Given recent dividend and growth forecasts, the valuation does not seem excessive and that encourages me to believe that, yes, I should invest in Vodafone.

And that's the conclusion reached by Neil Woodford, too, who has one of the best investment records in the business looking after two of Britain's largest investment funds, and running more money for private investors than any other City manager. His high-income fund has seen an investment return of 347% over 15 years. Right now, The Motley Fool is offering a free report that looks at some of the gems he holds in his funds. It's called "8 Shares Held By Britain's Super-Investor," and I recommend that you get hold of your copy while it is still available. To download the report, click here.

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The article Should I Invest in Vodafone? originally appeared on Fool.com.

Kevin Godbold has no position in any stocks mentioned. The Motley Fool recommends Vodafone. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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