Starting in June 2022, my wife and I built a new portfolio of UK and US shares for the long run. Today, this pot holds 14 FTSE 100 shares, six FTSE 250 holdings, and seven US stocks. But one thing holding back our fund’s performance is the Vodafone Group (LSE VOD) share price.
Vodafone shares slump
Lately, Vodafone stock feels like it was designed to maximise pain to shareholders. I speak from experience, as we bought into the telecoms giant for 90.2p a share in December 2022. Alas, that turned out to be my worst investment pick for many, many years.
As I write, Vodafone shares trade at 66.2p, valuing this business at £17.9bn. This is only 2.4% above their 52-week low of 64.65p, hit on 15 December last year.
At the turn of the century, Vodafone was Europe’s largest listed company, with a market value exceeding €200bn (£171.3bn). Today, it’s worth little more than a tenth of that amount.
Even worse, at its 52-week high on 21 February 2023, the share price briefly hit 103.24, leaving this stock down 35.9% in 11 months.
Over the past year, this Footsie share is down 27%, plus it has crashed 55.7% over five years. In other words, Vodafone has been a value trap, destroying shareholder value for years. But could that be set to change?
Fallen angel or dirty devil?
We bought into this group as a potential ‘fallen angel’ — an otherwise solid business whose shares were temporarily weakened. I had high hopes that Vodafone would turn out to be a recovery play in the otherwise stagnant European telecoms market.
Unfortunately, this turnaround looks some way off. That said, at least the latest CEO, Margherita Della Valle, is selling non-core assets and making partnerships to reduce costs and capital expenditure. Yet the fruits of her labours could take years to materialise.
Double-digit dividend yield
Now for the good news in a sea of pain. While I wait for Vodafone’s share price to recover, I am collecting one of the highest cash yields in the London market.
Today, this stock offers a dividend yield approaching 11.8% a year — close to three times the FTSE 100’s year cash yield of 4%. To me, that’s a decent reward while waiting for this tanker to turn around.
Then again, it’s possible that this payout could come under threat. Indeed, history has shown me that such mouth-watering yields rarely last. Either dividends fall or share prices adjust, driving down yields.
What’s more, Della Valle’s task is complicated by €33.4bn (£28.6bn) of net debt on Vodafone’s balance sheet. That’s over £10bn more than its current market valuation — hardly an ideal situation.
What next?
Looking ahead, I expect the Vodafone share price to rebound in 2024/25, lifted by higher revenues boosted by inflation-busting price rises. The average 12-month price target from analysts is 98.3p, but I can’t see this stock topping £1 this year. Maybe in 2025?
Then again, a combination of operational improvements and strong asset sales could drive up cash flow and strengthen the group’s balance sheet. But if Vodafone does cut its dividend this year, then all bets are off for me!
