Recent market volatility has prompted many investors to check their saving balances more often than not as they worry whether they will be able to retire comfortably. Two primary emotions, fear and greed, many drive many investment decisions, but saving for retirement should not keep you up at night worrying when you have a clear plan.
As part of a diversified retirement portfolio, I’d look for shares that offer both value and a healthy dividend, which is a reward for holding a given stock over time. Many blue-chip UK shares yield a dividend income of between 3% and 6% a year. And in 2018, most FTSE companies saw their share price falling considerably, which today gives investors a potentially cheaper entry point if they decided to hit the ‘buy’ button. As the markets begin to recover, the dividend income will be a bonus on top of any potential share price growth.
Vodafone looks compelling
As you build your retirement savings, you may want to consider the shares of Vodafone Group (LSE: VOD), the global telecoms giant. It currently offers a yield of almost 9.5%. The high payout is in part due to the company history of returning a big chunk of earnings to shareholders but is also due to the fall in share price during 2018. After reaching a high of 239.65p in January, the shares saw a low of 142.59p in November and investor sentiment remains weak in 2019.
As analysts debate what is next for Vodafone and whether a global recession is around the corner, I am in the cautiously optimistic bull camp. Many analysts regard revenues of telecom stocks to be relatively safe during an economic slowdown. You may be a Vodafone customer yourself or at least know of friends and family who are, and not many people would give up their phone account in a slowdown, unless their personal economic situation got really bad.
Strong management
Creating growth opportunities in a mature industry like telecommunication services requires proactive management, which I believe Vodafone has. In recent years, the group has pursued an ambitious acquisition strategy and invested in developing its network. Now management is working to integrate its various mergers and cut costs at the same time. The group expects to save about £1m in continental Europe alone. And that should help towards the double-digit profit growth analysts are expecting from 2020 onwards.
Growth in many emerging markets including the Middle East, Asia Pacific, and Africa, remains high, providing a tailwind in the near future. Right now Vodafone’s P/E ratio of 17 times looks slightly expensive, yet the growth in these markets justifies this number. OK, in 2018, fluctuating currency rates have meant the pound has suffered considerably while Brexit uncertainty have taken some of the shine off the performance in these regions. However 2019 will possibly see a different story as the markets have already priced the Brexit worries into the share price. Markets are always forward looking and the FTSE is likely to move away from this political discourse.
The Bottom Line
Vodafone’s investment prospects are improving and I feel the stock price now presents attractive value as well as total return potential, fuelled by the high dividend yield. The shares may continue to be volatile, yet as a buy-and-hold investor, you would collect over 9% in dividend payments, beating returns on many other investments.
