What You Were Selling Last Week: Vodafone Group plc

One of Warren Buffett’s famous investing sayings is “be fearful when others are greedy and greedy only when others are fearful” – or, in other words, sell when others are buying and buy when they’re selling.

But we might expect Foolish investors to know that, and looking at what Fools have been selling recently might well provide us with some ideas for investments that are past their prime

So, in this series of articles, we’re going to look at what customers of The Motley Fool ShareDealing Service have been selling in the past week or so, and what might have made them decide to do so.

Interesting times ahead

Shareholders of Vodafone (LSE: VOD) (NASDAQ: VOD.US) are in for some interesting times ahead. On the plus side, if all goes to plan, they should be getting a hefty payout  — around 112p per share — as a result of Vodafone’s sale of its minority interest in Verizon Wireless for $130bn.

But they’ll be left owning shares of a rather different Vodafone to the one they originally bought into.  And it’ll be a much less valuable one, too, with Vodafone’s market capitalisation inevitably falling to reflect the value of the payout.

They’ll also be left owning shares of a company they didn’t buy into in the first place — Verizon Communications — and will have to decide what to do with those. For anyone with a significant shareholding in Vodafone, the payout may well have some tax implications that will need careful consideration (and a great deal of coffee to help them plough through the 153 page ‘circular’, issued on 10 December, which contains the details).

Vodafone itself will be retaining about $35bn in cash from the sale, which it plans to use for a variety of purposes — reducing its debt, investing in infrastructure, and spending on corporate acquisitions.  But it remains to be see if the company will spend its cash-pile wisely, or if it will squander it on ill-conceived expansion.

And there’s also the concern that Vodafone’s share price, which has risen 50% during 2013, may be dangerously inflated because of speculation that the company may be the target of a takeover bid once the sale of Verizon Wireless is done and dusted, with AT&T being touted as the likely purchaser. However, if such speculation comes to nothing — and that’s a definite possibility — Vodafone’s share price could come crashing down.

Reasonable doubt

Many people will have originally invested in Vodafone as much for its dividend — currently at around 4.8%, — as for any dramatic share price growth (although that’s always a nice bonus, of course).  It’s provided a reliable and inflation-busting income stream, even during the recent financial crisis, with the company increasing its dividend by around 7% in each of the last four years.

But whilst Vodafone has said it intends to continue to grow its dividend, once it enters a post-VZW world, its ability to do that in the face of so much uncertainty seems open to some reasonable doubt.

For some people the risk presented by all those complications and uncertainties may have proved too much to be worth any dividends, or potential share price growth, in the short-to mid term.  And that may well be what put Vodafone into the number 1 spot in our latest ‘Top Ten Sells’ list*. 

But, of course, no matter what other people were doing last week, only you can decide if Vodafone really is a ‘sell’ right now.

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> Jon owns shares in Vodafone.

* based on aggregate data from The Motley Fool ShareDealing Service.