Investors looking for high dividend yields in the telecommunications industry naturally favor the U.S. giants like Verizon Communications (VZ). Verizon is a Dividend Achiever, a group of 271 stocks with 10+ years of consecutive dividend increases.

You can see the full Dividend Achievers List here.

But those willing to look beyond the borders of the U.S. should consider Vodafone (VOD). Vodafone is based in the U.K., which means its dividend fluctuates in U.S. dollar terms, due in part to currency exchange. This means it is not part of any dividend increase lists, such as the Dividend Achievers or Dividend Aristocrats, a group of stocks in the S&P 500, that have raised their dividends for 25+ consecutive years.

You can see the entire list of Dividend Aristocrats here.

But, Vodafone has a higher dividend yield than Verizon, and it may provide investors with stronger dividend growth up ahead. These two stocks operate in the same industry, but they are very different in many ways. This article will compare-and-contrast Vodafone and Verizon.

Business Overview

Winner: Verizon

Verizon and Vodafone were once connected, due to their joint ownership of Verizon Wireless. But this ended when Verizon acquired Vodafone’s 45% stake in Verizon Wireless, for $130 billion.

Verizon generates 100% of its revenue from the U.S., which has shielded it from the challenges Vodafone currently faces.

Vodafone’s revenue breakdown is as follows:

• Europe (66% of revenue)
• Africa, Middle East, and Asia Pacific (32% of revenue)
• Other (2% of revenue)

The environment for Vodafone is challenging to say the least. It has had to grapple with the heightened level of political risk in Europe, primarily from the Brexit vote.

If that weren’t troubling enough, Vodafone is highly exposed to the strong U.S. dollar. These factors weighed on Vodafone last year. Free cash flow declined 9% in 2016. Conditions have not improved much recently; Vodafone’s reported group revenue declined 3.9% last quarter. Verizon struggled last year as well, but fared slightly better operationally.

Source: 4Q Earnings Presentation, page 8

Its service-level margins held steady in 2016, and service revenue plus device billings rose 2% for the year. While Verizon’s domestic focus gives it a safe haven, Vodafone’s emerging-market foothold could provide it with stronger growth over the long term.

Growth Prospects

Winner: Vodafone

Verizon is being shielded from the headwinds facing international companies, but it also has a weaker long-term growth trajectory as a result. The U.S. telecom industry is virtually saturated. Future customer additions will likely come from other carriers, making for a zero-sum game. But, in order to lure customers away from the other major carriers, Verizon recently made the decision to offer unlimited data, to match its competitors that offer unlimited plans. A price war between the major U.S. carriers could continue to pressure Verizon’s wireless margins even further this year. Two of Verizon’s major future growth catalysts are digital advertising, and the Internet of Things.

Source: 4Q Earnings Presentation, page 12

First, Verizon’s digital media properties include AOL and several assets purchased from Yahoo! (YHOO). Verizon’s digital media segment generated $532 million of revenue in the fourth quarter, up 10% from the previous quarter. Next, Verizon has an emerging Internet-of-Things (IoT) business. Verizon’s organic IoT revenue increased 21% in the fourth quarter, to $243 million. Including acquisitions, its IoT revenue growth rate was 60%.

The company’s digital advertising and IoT businesses are putting up impressive growth, but put together, they represented just 2% of Verizon’s total revenue in the fourth quarter. As a result, they are still a long way from being large enough to meaningfully contribute to the company’s overall growth. Verizon does have 5G as a future catalyst, but it does not expect nationwide roll-out of 5G until late 2017.

Although Vodafone’s massive international presence is hurting the company in the near-term, it could be a major advantage in the long-term. Vodafone is pioneering growth in the emerging markets, most notably India. Vodafone’s market share in India is about to take a giant leap forward with the recent announcement that Vodafone India will merge with Idea Cellular (ICLQY).

Source: Vodafone Idea Merger Presentation, page 5

The deal will combine the No. 2 and No. 3 carriers in India, and together will unseat current No. 1 Reliance Jio. After the merger, Vodafone will own 45.1% of the combined company, which will have almost 400 million customers along with 35% market share in India. Presently, conditions in India are tough for Vodafone. The market is highly competitive, and a significant portion of India’s population lives in rural areas. However, the long-term potential is compelling: India is a high-growth economy, with a population exceeding 1 billion. After the combination, the new company will have No. 1 or No. 2 market share in several regions across the country.

Source: Vodafone Idea Merger Presentation, page 7

The merger will also help strengthen Vodafone’s balance sheet. The company expects the merger will reduce Vodafone’s net-debt-to-EBITDA ratio by 0.3, and by an even greater amount once synergies are included.

Source: Vodafone Idea Merger Presentation, page 15

Plus, creating the largest telecom in the country should provide significant scale benefits. Vodafone expects the combined company to generate $2.1 billion in annual run-rate cost savings by the fourth year.

Dividends

Winner: Toss-Up

On one hand, Vodafone is a higher-yielding stock than Verizon. This gives it an edge for dividend investors. Vodafone’s exact dividend is tricky to calculate, because of currency fluctuations. Most finance sites peg Vodafone’s dividend yield around 5-6%. However, since Verizon is a U.S. pure-play, it is facing fewer operational uncertainties right now than Vodafone. And, Verizon pays a quarterly dividend, which allows investors to compound their dividends faster than Vodafone, which makes semi-annual dividend payments. The trade-off is Vodafone’s higher yield.

According to Vodafone’s dividend history, it paid 11.45 pence per ordinary share in fiscal 2016. Based on prevailing exchange rates, this works out to roughly $0.14. Furthermore, ADRs of Vodafone represent 10 ordinary shares, which means its dividend was approximately $1.40 per ADR last year. This works out to a 5.2% dividend yield based on Vodafone’s recent share price. Meanwhile, Verizon has a 4.7% dividend yield, which means Vodafone provides roughly 11% more income than Verizon, for every $1 invested.

Final Thoughts

Investors who value long track records of steady dividend growth will likely view Verizon more favorably. Verizon is a Dividend Achiever, while Vodafone is not. To be sure, Verizon is a high-quality company that pays a reliable dividend. The bottom line is that risk-averse investors looking to play it safe should stick with Verizon. But, investors willing to dip their toes into international waters, can get a higher current yield on Vodafone. And, Vodafone has the potential for stronger earnings and dividend growth going forward, particularly if its investment in India pays off, or if the U.S. dollar reverses course going forward.