The Vodafone (LSE: VOD) share price has been one of the growth winners of the past few years… oh, hang on, I’ve got the chart the wrong way up!
Vodafone shares have actually lost more than 50% of their value in the past five years. They bottomed out in February at 52-week low of under 63p.
At 66p as I write, the price hasn’t regained a lot. But I can’t help thinking the second half of 2024 might bring a change.
Dividend slashed
The dividend has surely been a key part of Vodafone’s downfall, simply because it was unaffordable. When a company isn’t making the profit to pay it, shelling out for a dividend yield of 10% or more just has to be madness. I mean, isn’t that part of introductory economics?
It really didn’t serve shareholders well, with the cash looking like scant compensation for their dwindling share price.
But it’s all set to change. The board will still pay the full dividend this year, for a yield of 11.4% on the current share price.
But for 2025, it will slash it in half.
Restructure
It’s all part of CEO Margherita Della Valle’s plan to reshape the telecoms giant. The new way is to “be operating in growing telco markets.” And the firm has dumped businesses in Italy and Spain to help with that.
The disposals raised a nice chunk of cash, which should help fund the future. And there was enough for a share buyback as a sweetener.
But, while I applaud these plans, there are still some huge uncertainties hovering over Vodafone.
Still, looking at this upheaval, my take on Vodafone stock has cautiously changed from ‘wouldn’t even touch it with someone else’s bargepole’ to ‘this might actually be a buy now for both growth and income’.
Forecasts
Broker forecasts are up in the air a bit, and will surely be refined in the coming months.
But with decent earnings growth on the cards, we could see the price-to-earnings (P/E) ratio down as low as nine by 2026. And that’s with what would still be a good dividend yield.
There’s no guarantee that all of this will come good, though. And a fundamental change in a FTSE 100 company can be expensive and can take a long time.
I’m reminded of Aviva, which has also gone through a big refocus. It’s coming good now, but it took a few years for the evidence to show through and get investors back on board.
Wheels
So there’s a long way to go, and the wheels could still come off. And I know that for some of my colleagues at The Motley Fool, Vodafone is still firmly in bargepole territory.
Oh, and to add to the challenges, there’s still a sizeable pile of debt to deal with.
But I can’t help feeling that the risk might already be in the share price, and that we could see some strong gains by the end of the year.
FY results due on 14 May will be a must-read for me.
