Vodafone was the FTSE 100’s top dividend stock. Should we buy after the cut?

There’s always a risk when buying a dividend stock that the cash payout could be cut. That’s what just happened to Vodafone shareholders.

| More on:

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

When a Footsie dividend stock has its index-leading yield slashed, we might think the share price should fall.

But we didn’t see that at Vodafone (LSE: VOD) on 15 March, when the board told us of a cut. By the end of the day, the share price was up 7%.

Maybe it’s down to the good news that came with it.


CEO Margherita Della Valle promised to shake the firm up, and she’s delivering.

At FY time last year, she told us: “Our performance has not been good enough. To consistently deliver, Vodafone must changeWe will simplify our organisation, cutting out complexity to regain our competitiveness.”

The new step is the sale of Vodafone Italy for €8bn, which follows last year’s sale of Vodafone Spain.

The boss said: “Our transactions in Italy and Spain will deliver €12 billion of upfront cash proceeds and we intend to return €4 billion to shareholders via buybacks, as part of our broader capital allocation review.


That sweetens a 50% cut in the dividend, which won’t come in until 2025 anyway.

Even that should still mean a dividend yield of about 5.8%, and I like the sound of that. How many shareholders might have feared an even worse cut? I’d think quite a few.

With that uncertainty now gone, and a new €4bn share buyback, I think I’d be happy with the events of the week. If I owned any shares, that is. Which I don’t. But I might buy some now.

Still, we haven’t seen the back of all the uncertainty yet, not by a long way.

What next?

I do think what I’ve seen so far does reflect a far better long-term strategy.

Della Valle told us that the way forward is to be “operating in growing telco markets – where we hold strong positions – enabling us to deliver predictable, stronger growth in Europe“.

That’s coupled with planned growth in the business-to-business (B2B) market, and in digital services.

The new Vodafone that could come out of all this could be a far cry from just a few years ago. Then, what we had looked like no more than a jumble of disconnected phone companies, with no clear joined-up plans.

Not there yet

At this stage, I think back to Aviva when I first bought some. The insurance giant looked bloated, lacked focus, and the share price had been sliding.

The new, slimmer, and more efficient company we have now looks a lot better to me. But it’s taken time, the shares haven’t fully recovered yet, and I think there’s still some way to go.

I see the same uncertainty and risk at Vodafone. We’re really just at the start of any turnaround hopes, and it might be a while before we see firm results. Oh, and that huge debt pile still adds to the risk, and makes me a bit twitchy.

But I think a CEO like Margherita Della Valle is just what Vodafone needs. And this could be the start of something good. I’m considering buying for my 2024 Stocks and Shares ISA.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Alan Oscroft has positions in Aviva Plc. The Motley Fool UK has recommended Vodafone Group Public. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

happy senior couple using a laptop in their living room to look at their financial budgets
Investing Articles

Investing freedom — but inside a pension

Strapped consumers might be cutting back on investing, but they’re still keeping up their pension contributions. The only problem? A…

Read more »

Mature Caucasian woman sat at a table with coffee and laptop while making notes on paper
Investing Articles

Forget gold! I’d rather buy these 3 FTSE high-yielders in a Stocks and Shares ISA

Gold looks like a risky investment to me as the price hits an all-time high. I'm ignoring the fuss to…

Read more »

Young female business analyst looking at a graph chart while working from home
Growth Shares

This 55p UK stock could rise more than 300%, according to a City broker

This UK stock has fallen from above 800p to below 60p. But analysts at Citi believe it’s capable of a…

Read more »

Businesswoman analyses profitability of working company with digital virtual screen
Investing Articles

I think this FTSE 250 trust has all the right ingredients to lock in long-term profits

Today I'm examining the prospects of a private equity investment trust on the FTSE 250 that caught my attention recently…

Read more »

Young black man looking at phone while on the London Overground
Investing Articles

2 under-the-radar UK shares investors should consider snapping up

Two UK shares have caught the eye of our writer. She explains why investors should be taking a closer look…

Read more »

Investing Articles

Are these 2 ultra-high-yielding income stocks a good buy for me?

These two income stocks often split the debate amongst investors. So what does our writer think of them as potential…

Read more »

Senior woman potting plant in garden at home
Investing Articles

5% yield! This dividend stock could be great for my retirement

Our writer explains why this dividend stock appeals to her as she’s investing to build wealth to enjoy in the…

Read more »

A young Asian woman holding up her index finger
Investing Articles

I’d aim for a second income of £1,000 a month with this super-reliable dividend stock

I think a great way to build a second income stream is by investing in dividend stocks via a Stocks…

Read more »