A lot of my colleagues at The Motley Fool are really into Vodafone (LSE: VOD) shares and I have the utmost respect for their views. Stock picking is all about opinions, and there’s no right or wrong, at least until the results are in. I just wouldn’t go anywhere near it myself. That’s been my position for the last decade, and nothing has happened in that time to make me reconsider.
The obvious attraction of buying Vodafone is that it now offers the biggest yield on the entire FTSE 100 at a quite thunderous 11.95% a year. At that rate, I’d double my money in less than seven years, even if the share price didn’t grow at all. Recent history suggests it won’t, as it’s down 24.73% over one year and 58.67% over five. That’s an awful lot of wealth destruction right there.
The second big attraction is that the share price is dirt cheap, trading at just 6.6 times earnings (where 15 is seen as fair value). This is exactly the type of stock I’d like to buy, yet I still won’t touch Vodafone.
Not for me, sunshine
I’ve had some success buying dirt cheap dividend shares over the summer, most notably wealth manager M&G and resurgent housebuilder Taylor Wimpey. But I like to have a sniff of share price growth too, and Vodafone hasn’t delivered that in two decades.
Some now argue that could change. New broom Margherita Della Valle knows Vodafone has a problem and is keen to act. She has ambitious transformation plans, including investing in sales management, simplifying the corporate structure, axing 11,000 jobs, putting customers first and going back to what it does best.
Vodafone has fallen behind its European competitors, and needs to play catch up. Perhaps I’m being too negative. It is doable. But there’s a long journey ahead of it, and the group is still saddled with €36.2bn of net debt, despite recently offloading its Spanish operations for €5bn.
I might change my mind
The dividend is also a source of worry for me. Yes, it looks absolutely fabulous today, but can it survive? If I was Della Valle, I’d slice it in half, right here, right now. Investors would understand. Any double-digit yield is ripe for the chop. They’d still be getting income of 6% a year. If anyone quibbled, I’d pin the blame squarely on my predecessor. That’s what they’re for.
If Della Valle did that, it would end the uncertainty over how much income I’d get from this stock, at least for a few years. I’d know exactly what I was getting into. In fact, I’d be quite tempted to buy Vodafone, then, especially if the share price took a short-term knock, making it cheaper.
Its journey will still be hard. Consumers are under the cosh, a recession looms while Germany is a notable struggler right now. I’ll keep watching Vodafone shares, but I’ll resist that mighty dividend until I feel can really rely on it. Then I might finally fall into line with my fellow Fools and buy it. Not today though.
