Is it time for me to eat humble pie over Vodafone (LSE: VOD) shares? I’ve been turning my nose up at them for years. Suddenly, they’re on fire.
The Vodafone share price is up 14.5% in the last month. If a smart investor had put £10,000 into the FTSE 100 telecoms giant at the start of that run, they’d have £11,450 today. That’s a bumper paper profit of £1,450. Over 12 months they’re up 7%.
Nice. But also a real shock, if you’re me. Possibly even embarrassing.
Is this now a brilliant FTSE 100 recovery play?
I turn my attention to Vodafone from time to time. Usually, I give it a quick swipe in passing, then move on after declaring I’d never, ever buy it. Which has been a pretty rational way to approach the stock, given that its share price has been on the slide since peaking at 548p on 10 March 2000, during the dot-com boom.
During that time it’s been one of the most generous dividend income stocks on the FTSE 100. Yet its eye-catching yield was mostly down to the falling share price, while the income was wiped out by the long-term capital loss.
So I felt I was right to be dismissive. And yet so wrong. On these pages on 13 February, I asked: “Why on earth are investors still buying Vodafone shares?”
I just couldn’t see it. I warned the yield wasn’t all it seemed. In May 2019, the board cut the dividend per share by 40% to 9 euro cents, then halved it to just 4.5 euro cent from this month. The first cut was down to €7.6bn loss on the sale of Vodafone India, and stiff competition in Italy and Spain. The second was part of a broader strategy to streamline operations, slash debt and invest in costly 5G infrastructure.
Neither cut surprised me. On both occasions, the yield was touching double digits, the highest on the FTSE 100.
Can it offer growth as well as income?
I knew everything about Vodafone, or so I thought. The one thing I didn’t know was what would happen next. Which is that the shares would suddenly rocket. No big news. No results. The wider market was turbulent. Yet Vodafone bounced. Why?
On 14 March, Liberty Global reportedly offered €2bn to buy Vodafone’s stake in its Dutch joint venture VodafoneZiggo. The cash would come in handy, given Vodafone’s €33bn net debt in 2024, but doesn’t explain the spike.
Another factor may be that the shares hit a 52-week low of 65p in February. Perhaps bargain seekers were taking advantage. Yet Vodafone shares regularly hit year lows. Where’s the novelty?
Investors won’t give up on Vodafone, which continues to attract robust trading volumes, with 131.8m shares traded on Monday (17 March) alone. They don’t look poor value either, trading at 11.9 times earnings. Plus the forecast yield’s 5.17% this year, despite this month’s cut rising to 5.24% in 2026.
I’m surprised by the jump, but it doesn’t change my view. CEO Margherita Della Valle still has a huge turnaround job on her hands. Vodafone shares may be red-hot today, but I remain cool and won’t consider them.
