Image source: Domino's Pizza Group plc
Earlier today, the FTSE 100 The index hit an all-time high of 8,103.92 points before retreating. Suddenly the Footsie is back in fashion, and a major takeover bid was also announced today. However, not all stocks have enjoyed this rising tide, including Vodafone Group (LSE:VOD) share price.
Vodafone is volatile
If you look at Vodafone's one-year share chart, you can see that its trajectory is heading south, but with quite a few zigzags along the way.
At its 52-week high, the Vodafone share price peaked at 97.05p on May 3, 2023, but has largely gone downhill since then. On February 12, the stock bottomed at 62.59p, before recovering.
As I write on April 25, the shares are trading at 70p, valuing this multinational telecommunications group at £19bn. This is a far cry from its valuation at the turn of the century, when it was Europe's largest listed company before the dotcom bubble burst.
Here's how the stock has performed on six time scales:
| Five days | +4.6% |
| One month | +1.7% |
| Six months | -5.9% |
| To date 2024 | +1.8% |
| One year | -23.8% |
| Five years | -51.0% |
Looking at my desk, I see a stock adrift with no short-term momentum. Furthermore, Vodafone shares have been a long-term lemon, losing almost a quarter of their value in one year and more than half in five.
The hidden value of Vodafone?
For the record, my wife and I own these shares, having paid 90.2 per share for our stake in December 2022. Year to date, we are suffering a 22.4% paper loss, which I'm not excited about .
What prompted me to buy this group was its dividend. At the current share price, Vodafone shares offer a cash yield of 11% per year. This is almost triple the FTSE 100's dividend yield of less than 4% per year.
Now the bad news: to preserve cash and strengthen its balance sheet, the group's board has decided to halve its annual dividend from $0.09 to $0.045 next year. This will save around £1bn a year in cash payments – a saving it could perhaps use to cut its €36.2bn net debt?
Despite the halving of future dividends, Vodafone's share price has remained stable of late. This is because the company is selling its Italian subsidiary to Swisscom for 8 billion euros, allocating half of this sum to the buyback of shares.
Could shares hit £1?
Buying back €4bn of its shares would reduce the size of Vodafone's shareholding base by around 18%. All things being equal, this would increase future earnings per share by 22%.
Furthermore, I am hopeful that the group's plan to merge its UK operations with those of CK Hutchison-owned Three will gain approval from the UK Competition and Markets Authority. If this £15bn merger goes through then it could boost the shares.
However, as I said before, Vodafone has been a loser for shareholders for a long time. It has struggled to grow its revenue, profits and cash flows over the years, while its net debt is a major burden.
That said, if CEO Margherita Della Valle can successfully execute her turnaround plan, then Vodafone's share price could once again surpass the pound sterling. But I won't hold my breath until then!
