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If anything, my article tips the scale of Vodafone (LSE: VOD) share price decline. A 54.34% decline in five years is bad enough. But it’s also down 61% in a decade and down 87% since the dot-com mania peak in March 2000.
Things have been fine lately. Vodafone shares are down just 2.44% over the past year, so are they finally out?
Ending the suffering of Vodafone’s share price has been a losing bet for 25 years. While some investors have taken comfort in Vodafone’s large cash flow, I’ve never seen an appeal.
Dividend income cannot make up for lost growth
Vodafone has had too much on its plate, for too long. It operates in highly competitive markets across Europe and Africa, where price wars and regulatory challenges are constantly pressing.
The board has struggled with the large scale of its operations, and has been aggressively trying to assert itself by selling non-core assets and exiting saturated markets.
The board has worked hard to pay off its debt, but still owes €33.24bn in the end. High interest rates have added to the burden, although that should ease in the coming months. It has to pay another €1.3bn or more after selling a 10% stake in the joint venture that jointly controls Vantage Towers.
In terms of dividends, the board has cut shareholder payouts in half twice over the past few years. The second one goes into effect in March.
Ironically, the markets accepted both cuts, accepting that they were inevitable. I don’t see the charm of it. Vodafone’s yield looks high only because the shares have fallen so far. In monetary terms, it has been shrinking. Let’s see what the chart shows.
Chart with TradingView
So when newbie investors call up the list of top FTSE 100 producers and see Vodafone up 10.35%, they are misled. They will get about half of that. While that’s a strong return for someone buying today, it’s a bad idea for those who bought at £1, £2, £3, or the heavy forbid, March 2000 price of £5.48 per share.
Hope springs eternal and the 11 analysts providing one-year price forecasts for Vodafone have set an average target of 87.18p. That’s up 18.13% from here. It is possible.
I will not buy this FTSE 100 stock again
Vodafone posted a strong first quarter as rising revenues in Africa and Turkey offset slowing growth in Europe and declining sales in Germany. Vodafone expects to generate full-year adjusted EBITDA earnings of €11bn, the same as last year. Adjusted free cash flow should be at least €2.4bn, slightly less than last year’s €2.6bn.
In August, Vodafone announced a share buyback of 500 million euros, part of its plan to return 2 billion euros to shareholders over the next 12 months, using the proceeds of the sale of the Spanish business to Zegona Communications. That might please some, I think.
Others are excited about the group’s 10-year tie-up with Google, which will provide AI-powered devices to Vodafone customers across Europe and Africa.
If the board can continue to make decisions and reforms, at some point Vodafone’s share price may start to recover. Never say Never. But I haven’t changed my mind and I won’t invest today or in what happens.
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