Vodafone (VOD) is one of the largest telecom companies in the world with over 400 million subscribers; it is one of the three largest mobile operators in the U.K., Germany, Italy, Spain, South Africa, Egypt, and Turkey, explains Gavin Graham, contributing editor to The Income Investor.

The company also provides broadband and TV services in a number of these markets and recently combined its Indian operations with Idea Cellular to hold a minority stake in the largest Indian cellular business.

The shares have been badly affected by the turmoil in emerging markets, falling 35% from their high of US$32.75, reached in January.

It is ironic that Vodafone is being punished for its high exposure to the emerging markets. Its recent deal in May to acquire Liberty Global's broadband and TV operations in Germany, the Czech Republic, Hungary, and Romania increases Europe's share of Vodafone's EBITDA to a whopping 77%.

German broadband penetration is amongst the lowest in Europe at only 32%. Low broadband penetration (28%) in these eastern European countries gives room for growth.

While Deutsche Telekom, the incumbent in Germany, is attempting to block the deal, the ability of the combined group to achieve two-thirds of the German government's target of gigabit broadband connectivity across the country three years ahead of schedule (by 2022), should ensure it goes through.

The sharp sell-off in the last few months seems a major over-reaction and to ignore how much of Vodafone's earnings comes from the more stable European markets.

The dividend looks secure, and the management has committed to increasing it by 2%-5% a year in euro terms. Yielding over 8%, paid semi-annually, Vodafone remains a buy.

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