The appeal of Vodafone (LSE: VOD) shares baffles me. I just don’t get it. Yet plenty do.
At The Motley Fool, we have complete freedom to name the shares we love and the ones we hate. We think debate and disagreement makes us better investors. Plenty of my fellow writers have admired Vodafone over the years. I admire their judgement, but I’m sorry, I still don’t get it.
I didn’t get it 10 years ago, when the Vodafone share price stood at 232p. And I didn’t get it five years ago, when it traded at 155p. Nor three years ago, by which time it had slipped to 137p.
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And I certainly didn’t get the appeal 12 months ago, when the stock was down to 64p.
This FTSE 100 stock just drops and drops
Vodafone has just fallen and fallen. It’s been dropping for 25 years, since peaking at 502p in February 2000, at the height of the dot-com frenzy.
I’m staggered that it still has a market cap of £17bn. Or remains a FTSE 100 fixture. Or that somebody hasn’t cried ‘Enough is enough!’ then waded in and broken the business up.
Okay, I know why people like it. They’re captivated by the yield. Vodafone has paid investors a heap of dividends over the years. Last year, it was the highest yielder on the entire FTSE 100, paying income of 11%.
Don’t be misled. Shareholder payouts have been cut twice in six years. In May 2019, the board cut the dividend per share by 40%, from 15.07 euro cents to 9 euro cents. This followed a €7.6bn loss attributed to the sale of Vodafone India, and increased competition in markets like Italy and Spain.
From March, payouts will be halved to just 4.5 euro cents, as part of a broader strategy to streamline operations, reduce debt and invest in key areas such as 5G infrastructure. The dividend has been falling as fast as the shares.
It’s true that the forecast yield still looks pretty good at 5.65%. But only because the shares have fallen so far.
The dividend is crashing too!
Vodafone has spent the entire millennium working off the excesses of the dotcom boom. The latest CEO to give it a whirl, Margherita Della Valle, is driving through her own transition programme, cutting 11,000 jobs (12% of the workforce), offloading the underperforming Spanish and Italian businesses, and merging Vodafone’s mobile operations with Three UK. She’s also pushing Vodafone’s fast-growing B2B division. All this makes sense.
Vodafone remains one of the world’s biggest telecoms groups with €37bn of revenues in fiscal year 2024. It has more than 300m mobile customers and 27m fixed broadband customers. It’s a big deal. Yet size can be more of a burden than a blessing.
Newsflash! Suddenly its shares are rising. They’re up 7.5% in the last month to 69p. Maybe we’ve finally hit turning point.
I still won’t buy Vodafone shares. The board still has to devote too much of its energies to tidying up past mistakes. There are higher yields out there. More reliable ones too. Many of my fellow Fools will disagree. Let’s see who’s right this time.
