If anything, my headline understates the scale of the Vodafone (LSE: VOD) share price meltdown. Falling 54.34% in five years is bad enough. But it’s also down 61% over a decade and a whopping 87% since peak dot-com mania in March 2000.
Things have settled a bit lately. Vodafone shares are down just 2.44% over the last year, so have they finally bottomed out?
Calling an end to Vodafone’s share price woes has been a losing bet for 25 years. While some investors have consoled themselves with Vodafone’s generous income stream, I never saw the appeal.
Dividend income can’t make up for lost growth
Vodafone has had too much on its plate, for far too long. It operates in highly competitive markets across Europe and Africa, where price wars and regulatory challenges constantly squeeze margins.
The board has struggled with the sheer scale of its own operations, and has desperately been trying to assert control by selling non-core assets and exiting saturated markets.
The board has worked hard to pay down its debt, but still owed €33.24bn at last count. High interest rates have added to the burden, although that should ease in the months ahead. It should pay down another €1.3bn or so after recently selling a 10% stake in the joint venture that co-controls Vantage Towers.
As for the dividends, the board has cut shareholder payouts in half twice in recent years. The second comes into force in March.
Bizarrely, markets welcomed both cuts, accepting they were inevitable. I don’t see the charm of it. Vodafone’s yield only looks high because the shares have fallen so far. In cash terms, it’s been shrinking. Let’s see what the chart shows.
Chart by TradingView
So when newbie investors call up a list of the top FTSE 100 yielders and see Vodafone right at the top with 10.35%, they’re being mislead. They’ll get around half that. While that’s a solid return for someone who buys today, it’s a poor shhow for those who bought at £1, £2, £3, or heaven forbid, the March 2000 price of £5.48 per share.
Hope springs eternal and the 11 analysts offering one-year price forecasts for Vodafone have set a medium target of 87.18p. That’s a rise of 18.13% from here. It could happen.
I still won’t buy this FTSE 100 stock
Vodafone posted a strong first-quarter as rising revenues in Africa and Turkey made up for slowing growth in Europe and falling sales in Germany. Vodafone expects to generate full-year adjusted EBITDA earnings of €11bn, similar to last year. Adjusted free cash flow should be at least €2.4bn, slightly below last year’s €2.6bn.
In August, Vodafone announced a €500m share buyback, part of its plan to return €2bn to shareholders in the next 12 months, using the proceeds of the sale of Spanish business to Zegona Communications. That may excite some, I suppose.
Others are excited by the group’s 10-year tie-up with Google, which will offer AI-powered devices to Vodafone customers across Europe and Africa.
If the board can continue trimming and tidying, at some point the Vodafone share price may stage a recovery. Never say never. But I haven’t changed my mind and won’t be investing today or in the foreseeable.
This post was originally published on Motley Fool
