The past month has not been pleasant for struggling shareholders in Vodafone Group (LSE: VOD). What’s more, Vodafone shares have crashed by more than a quarter since late June. So what’s going on at the telecoms giant?
Vodafone shares slip and slide
As I write on Tuesday afternoon, Vodafone shares stand at 96.38p, down another 7.77p (-7.5%) today. This followed what I would describe as a mixed bag of results from the FTSE 100 firm. Indeed, the Vodafone share price dropped to a 52-week low earlier today, bottoming out at 94.61p before bouncing back.
This is a far cry from nine months ago, when the share price hit its 2022 peak of 141.6p on 10 February. Alas, two weeks later, Russia invaded Ukraine, and Vodafone’s share price has been on a long slide ever since. Here’s how this popular and widely traded stock has performed over the short and medium term:
| Five days | -9.2% |
| One month | -3.6% |
| Six months | -19.7% |
| 2022 YTD | -14.2% |
| One year | -14.3% |
| Five years | -57.9% |
In the past six months, Vodafone shares have lost almost a fifth of their value. Even worse, they have crashed by nearly three-fifths over the last half-decade. These returns exclude cash dividends, which would boost yearly returns by several percentage points. Even so, this shows that this FTSE 100 stock has been something of a lemon since late 2017. Yikes.
Vodafone’s dividend might be under threat
After recent price falls, Vodafone’s market capitalisation has slumped to £26.2bn, sending it plunging down the league table of the Footsie’s biggest firms. In its latest half-year results, Vodafone revealed that its net debt had declined by 2.8% to €45.5bn (£39.7bn). Still, this strikes me as a pretty hefty debt burden in a time of rapidly rising global interest rates.
In addition, Vodafone’s market-beating dividend yield is no longer covered by its earnings. At its current price-to-earnings ratio of 15.3, this stock offers an earnings yield of 6.5% a year. This means that its bumper dividend yield of 7.8% a year is covered only 0.8 times by earnings.
In other words, for the group to continue to pay out this near-8% yearly cash yield, it might have to dip into its cash reserves or sell more assets. Frankly, I can’t see this being an option forever. Hence, Vodafone might decide to hold its dividend for 2023, but then reduce it later on.
But it’s not all doom and gloom
However, it’s not all bad news at Vodafone. Half-yearly group revenue and group service revenue both rose year on year, while operating profit climbed by 12%. Likewise, adjusted earnings per share jumped to 6.02 euro cents, versus 4.9 cents for the same period of 2021. These improvements were partly driven by inflation-busting UK price rises earlier this year. So at least the group’s top line is still growing.
Then again, British consumer confidence is testing record lows, driven down by soaring inflation, crippling energy and fuel bills, and rising interest rates. And it’s pretty clear to me that our economy is heading into recession. And that’s why I won’t buy shares in Vodafone, even after these latest falls!
