Arguably, there’s no such thing as a safe-haven stock right now. In today’s stock market crash, few firms offer absolute protection. A third of FTSE 100 companies have now axed their dividends. This poses a challenge for people looking to build a big enough share portfolio to generate the income they need to retire early.
Telecoms giant Vodafone Group (LSE: VOD) looks safer than most. Why? Because it offers services we can consume at home, helping us stay sane in these strange, lockdown days. Nobody wants to go without broadband, or their mobile phone right now.
Vodafone’s revenues may still take a hit, as people lose their jobs. However, most people see broadband and mobiles as essential purchases, rather than discretionary ones. That’s why I see this as a rare FTSE 100 safe-haven stock.
You need income to retire early
This hasn’t protected it from the stock market crash though. The Vodafone share price has fallen around 25% from its January highs. So you’re buying it at a relative discount. However, bargain hunters should also beware of the challenges this safe-haven stock faces right now.
Vodafone publishes its full-year results to 31 March on Tuesday, and investors will be looking for the latest net debt figure. That stood at a hefty €48.1bn at the end of Q3, due to acquisition and 5G costs. Investors are understandably wary of indebted companies right now.
The FTSE 100 group plans to dispose of assets to drive down that debt, including mobile towers and its optical fibre network. Vodafone has sold operations in New Zealand, Malta and Egypt, and merged its mobile towers business with Telecom Italy. It also plans to float its European Towers business next year. Today’s crisis could threaten that though.
The main reason investors buy Vodafone is for its juicy dividend, as share price growth has been negligible for years. So far, it’s survived coronavirus, cementing its safe-haven status. Today, income seekers can look forward to a yield of around 7% a year.
This safe-haven stock still pays dividends
The payout is not sacrosanct. Last year, new CEO Nick Read cut the dividend for the first time, after the group posted a €7.6bn full-year loss. Many welcomed the whopping 40% cut to €0.09, as the yield was heading into double digits at the time.
Could Read cut the dividend again tomorrow? Vodafone paid €0.045 in the first half, putting it on course to maintain last year’s payout. But that was before the current crisis. We should know more tomorrow. If the dividend holds, Vodafone will be the eighth-biggest payer in the FTSE 100, AJ Bell calculates.
Despite being a relative safe-haven stock, Vodafone still faces challenges. Users are less likely to upgrade phones and contracts. Especially with the high street in lockdown. Essential maintenance work must also be backing up.
No company is immune to Covid-19, but Vodafone looks in better shape than most. That income stream could power a comfortable retirement. Tomorrow’s results will tell us more.
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.