Wednesday 9 January 2013

Portfolio Buy: Vodafone Group (LSE:VOD)

Vodafone is one of the quintessential high-yield dividend shares. I took some profits on my holding a year ago but with my growing cash pile I thought it might be time to jump back in.

Welcome back Vodafone, I've missed you.

The VOD share price has been in the doldrums during 2012 - but it has shot up in the New Year.

Of course, the talk today is all about Verizon Communications in the US - and whether they will buy out Vodafone's 45% shareholding in Verizon Wireless.

In 2012, Verizon paid Vodafone a total of £5.3bn in dividends, primarily because Verizon wants dividends itself and without these dividends, Verizon Communication's own dividend and share price would be under threat.

The shares come with an expected yield of over 6%, while the company is also using its dividends from Verizon Wireless to buy back shares in the market.

The latest financial presentation for the first half of the year (published September 2012) shows strong growth in adjusted operating profit, despite a fall in revenues and £2.2bn (!) in free cash flow (although this is less than the £2.6m of the previous year).  The pattern of growth is heavily weighted towards developing economies - with declines in most developed markets, excluding Germany. Interestingly, Verizon showed the fourth largest growth rate of their markets. However, in the home UK market it has grown the number of contracts, showing that it can be competitive - although this is at the cost of revenue growth.

There is a lot more in the company presentation but the overall flavour is of a company seeking to cut costs, innovate and not afraid of change. I like it when a company says "Shareholder returns continue to be a priority" - particularly £4.9 billion of ordinary dividends, plus the share buy-backs and the special dividends and additional buy-backs financed by the Verizon dividends.

And potentially this is the sort of share that will benefit when the big money moves back from bonds.

[Purchase price: £1.65]

I am not a financial adviser and the information provided does not constitute financial advice. You should always do your own research on top of what you learn here to ensure that it's right for your specific circumstances.


  1. Interesting indeed, I bought in at a very similar price point during a temporary slump about 12 months ago (I think it was something like £1.66 or £1.68).

    I then saw the ascent into the £1.90 territory and thought this was a little premature with the current state of the economy and the bond market and seemingly (amazingly!) was proven right when the price dropped away.

    I have the same view as you. In that when the bond bubble starts to even out or at least slow down, I think there could be a quite a big influx of the "big money" into this share.

    My current thinking is a target price of around the £2.00 mark, but with a big influx and some of the developing markets taking off this could raise significantly.

    What about yourself, do you have any target prices in mind?

    1. Hi Dee-Jay

      I don't buy with a target price but rather on the expected yield. However, I will consider selling if the price increases by more than 5-years'-worth of dividends - the equivalent of around 50p: so around £2.15. A bit unlikely!

  2. hi good post. but i am just wondering if your yield is lower than 6%.

    there are still much overhang to whether the 7% increase in dividends will still take place. that and the occasional nice bump from vz is the attractive factor.