The Motley Fool

Should you sell the Vodafone share price after today’s dividend cut?

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Clock pointing towards a 'sell' signal
Image source: Getty Images.

I guess it had to happen, sooner or later. After weeks of speculation, FTSE 100 income hero Vodafone Group (LSE: VOD) has finally cut its dividend today and by a pretty hefty 40%. This is a rarity, the first time it has cut payouts since 1990.

Dial it down

With the current yield an almighty 10%, the writing really was on the wall. The big question is whether now is the time to give up on Vodafone. I don’t think it is.

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…

And if you click here we’ll show you something that could be key to unlocking 5G’s full potential...

Publishing its results for the year to 31 March 2019 this morning, Vodafone announced that it was rebasing its dividend per share to 9 eurocents, or down from 15.07 eurocents in full-year 2018. A cut of 40% is pretty meaty even if it tried to soften the blow by talking of a “progressive future dividend policy”.

At a loss

Peter Stephens is just one of several Fool writers to have alerted investors to the danger, warning that the Vodafone dividend could fall victim to the group’s aggressive acquisition strategy, by driving up its financial commitments.

Vodafone posted a full-year loss of €7.6bn, primarily due to a loss on the disposal of Vodafone India and impairments, announced in November. Organic service revenue rose 0.3%, “as good performance in most markets offset increased competition in Spain and Italy and headwinds in South Africa”. Group revenues totalled €43.7bn.

Organic adjusted EBITDA rose 3.1%, meeting guidance for around 3% growth, helped by a €400m cut in European operating expenses.

Big money

The telecoms sector has been tough for years – the Vodafone share price trades at exactly the same level it did a decade ago. Tough competition, large debts and costly spectrum auctions have squeezed profits and investor confidence, while Vodafone also has to fund its costly €19bn acquisition of Liberty Global’s German and Eastern European cable networks.

In some respects, it is a relief to get the cut out of the way. This still leaves Vodafone yielding 6.5% and the share price damage has been relatively minor, its stock is down 3% at time of writing. Earnings are still expected to drop this year but that should swiftly reverse with City analysts anticipating growth of 17% over the next couple of years.

Hold not buy

The group, which has a market cap north of £34bn, now trades at 15.1 times earnings. Sadly, that offers little to excite bargain seekers, or those who think it may finally be time for some share price action.

Vodafone may have made the right call today by cutting its dividend but as it presses on with its pricey 5G rollout, I personally wouldn’t rush to buy.

Who’s next?

With many other top FTSE 100 stocks also yielding around 10%, it will be interesting to see how many others follow. British Gas owner Centrica, for example, yields 10%, making it one of the highest yielding utility stocks and the highest income play on the FTSE 100. Speculation is now growing that it will be next to cut.

Today’s relatively sanguine market response to Vodafone suggest it does not have to be the end of the world when a company offering such a massive yield rebases, as it still leaves an attractive income stream.

5 Stocks For Trying To Build Wealth After 50

Markets around the world are reeling from the coronavirus pandemic…

And with so many great companies trading at what look to be ‘discount-bin’ prices, now could be the time for savvy investors to snap up some potential bargains.

But whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be daunting prospect during such unprecedented times.

Fortunately, The Motley Fool is here to help: our UK Chief Investment Officer and his analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global lock-down…

You see, here at The Motley Fool we don’t believe “over-trading” is the right path to financial freedom in retirement; instead, we advocate buying and holding (for AT LEAST three to five years) 15 or more quality companies, with shareholder-focused management teams at the helm.

That’s why we’re sharing the names of all five of these companies in a special investing report that you can download today for FREE. If you’re 50 or over, we believe these stocks could be a great fit for any well-diversified portfolio, and that you can consider building a position in all five right away.

Click here to claim your free copy of this special investing report now!

Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.

Our 6 'Best Buys Now' Shares

Renowned stock-picker Mark Rogers and his analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply click below to discover how you can take advantage of this.