The Vodafone share price looks dirt cheap. I still wouldn’t touch it with a bargepole

On paper, the Vodafone share price looks like one of the FTSE 100’s best buying opportunities. But this Fool thinks otherwise.

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I think there are plenty of bargains on the FTSE 100 at the moment. I must admit, I’ve been keeping a close eye on the Vodafone (LSE: VOD) share price lately, given how cheap it looks.

Today, a share in the telecommunications giant would set investors back just 74.9p. That’s some drop off from the highs it reached in 2000 when, at one stage, it was the largest company in Europe by market-cap.

On paper, it now looks like a great bargain for a savvy investor. However, I’m steering clear of adding Vodafone to my portfolio anytime soon.

Too many concerns

I see too many issues with Vodafone today. The largest of these is its €33.2bn pile of net debt. That’s a monumental amount and to me is a major red flag. I must remember that raised interest rates will only make this more difficult to reduce.

On top of that, I’m wary that Vodafone’s a classic value trap. Its share price performance over the last 10 years or so has been woeful. In the last decade, it shares have lost 64.2% of their value. In the last five years, the stock’s down 42.3%. Even over the last year, where the Footsie has rallied 8.9%, Vodafone shares are down 3.9%.

A shrinking dividend

I may be biased as an investor who likes to seek income. However, the stock also loses its appeal when I consider its major 10.2% dividend yield won’t be around for much longer.

It currently offers investors the highest payout on the Footsie. Yet last year, the company announced it would cut its dividend in half from 2025, slashing it from 9 cents a share to 4.5 cents.

The move makes sense. Its current yield was unsustainable. With a smaller payout, the firm will now have up to €1bn a year free to spend elsewhere.

Yet in times gone by, I’ve been largely tempted to snap up Vodafone for the income. With its yield set to shrink, I’m not as keen. While its new yield will still be above the Footsie average (3.6%), I’m concerned we could see more cuts further down the line.

Too harsh?

That said, maybe I’m being too harsh. There are certain aspects of the business I like. For example, it continues to make headway in its turnaround under CEO Margherita Della Valle. Last month, the firm announced its results for FY24. During the year, group service revenue rose 6.3%.

The business also announced a €2bn share buyback with the funds generated from disposing its Spanish business for €5bn. There’s talk of a further €2bn buyback with the funds it receives from offloading its Italian business. So there’s that to consider.

I’m looking elsewhere

But even so, I see too many issues with Vodafone right now. It’s one I’ll be keeping on my watchlist for the time being.

As I highlighted at the offset that I think the Footsie is jam-packed with undervalued shares at the moment. As such, I’m looking elsewhere on the index for my next buy.

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.

Charlie Keough has no position in any of the shares mentioned. 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.

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