When a Footsie dividend stock has its index-leading yield slashed, we might think the share price should fall.
But we didn’t see that at Vodafone (LSE: VOD) on 15 March, when the board told us of a cut. By the end of the day, the share price was up 7%.
Maybe it’s down to the good news that came with it.
Shakeup
CEO Margherita Della Valle promised to shake the firm up, and she’s delivering.
At FY time last year, she told us: “Our performance has not been good enough. To consistently deliver, Vodafone must change … We will simplify our organisation, cutting out complexity to regain our competitiveness.”
The new step is the sale of Vodafone Italy for €8bn, which follows last year’s sale of Vodafone Spain.
The boss said: “Our transactions in Italy and Spain will deliver €12 billion of upfront cash proceeds and we intend to return €4 billion to shareholders via buybacks, as part of our broader capital allocation review.“
Sweetener
That sweetens a 50% cut in the dividend, which won’t come in until 2025 anyway.
Even that should still mean a dividend yield of about 5.8%, and I like the sound of that. How many shareholders might have feared an even worse cut? I’d think quite a few.
With that uncertainty now gone, and a new €4bn share buyback, I think I’d be happy with the events of the week. If I owned any shares, that is. Which I don’t. But I might buy some now.
Still, we haven’t seen the back of all the uncertainty yet, not by a long way.
What next?
I do think what I’ve seen so far does reflect a far better long-term strategy.
Della Valle told us that the way forward is to be “operating in growing telco markets – where we hold strong positions – enabling us to deliver predictable, stronger growth in Europe“.
That’s coupled with planned growth in the business-to-business (B2B) market, and in digital services.
The new Vodafone that could come out of all this could be a far cry from just a few years ago. Then, what we had looked like no more than a jumble of disconnected phone companies, with no clear joined-up plans.
Not there yet
At this stage, I think back to Aviva when I first bought some. The insurance giant looked bloated, lacked focus, and the share price had been sliding.
The new, slimmer, and more efficient company we have now looks a lot better to me. But it’s taken time, the shares haven’t fully recovered yet, and I think there’s still some way to go.
I see the same uncertainty and risk at Vodafone. We’re really just at the start of any turnaround hopes, and it might be a while before we see firm results. Oh, and that huge debt pile still adds to the risk, and makes me a bit twitchy.
But I think a CEO like Margherita Della Valle is just what Vodafone needs. And this could be the start of something good. I’m considering buying for my 2024 Stocks and Shares ISA.
