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Buyers not often react positively to information of a pointy dividend discount. However Vodafone Group (LSE:VOD) shares have obtained a giant bump after the agency introduced a halving within the shareholder payout from subsequent yr.
At 70.3p per share, Vodafone’s share value was final buying and selling 6.4% on Friday (15 March).
To be honest, the market was additionally impressed by information of a €4bn share buyback programme following one other main asset sale. However the dividend reduce confirms what many merchants and commentators have lengthy predicted.
The query I’m asking right here is: are Vodafone shares an excellent purchase following this newest information?
Massive gross sales
Right this moment the FTSE 100 agency confirmed it had agreed to promote its Italian operations to Swisscom for €8bn. This follows the $5bn agreed sale — which comprised €4.1bn in upfront money and €900m in desire shares — of its Spanish division late final yr.
Vodafone stated it plans to return €4bn of this money to shareholders in two separate and equal transactions when these gross sales are accomplished.
The agency famous that it “will now focus its operations in Europe on rising markets, the place we maintain sturdy positions with good native scale“. It stated that each one the telecom markets inside its new geographic footprint — together with within the UK, the place it’s aiming to merge its operations with Three — have been increasing up to now three years.
Dividends slashed
As I stated, the opposite main announcement right now associated to the corporate’s new dividend coverage because it shakes up its capital allocation coverage.
Vodafone plans to pay one other full-year dividend of 9 euro cents per share within the present monetary yr (to March 2023). Nevertheless, it stated payouts will probably be lowered to 4.5 cents from subsequent yr onwards.
This implies shareholders will obtain as much as €3.1bn in whole returns in monetary 2025, representing €1.1bn in dividends and as much as €2bn in share buybacks. It will characterize a 23% improve in cumulative returns from this yr.
The corporate additionally declared plans to “keep a powerful stability sheet” with a brand new leverage coverage. Web debt to adjusted EBITDAaL will probably be set at 2.25 instances to 2.75 instances.
Excellent news
I personally have lengthy been tempted to purchase Vodafone shares for my portfolio. And right now’s information has improved my urge for food for the inventory.
Its lowered footprint will permit Vodafone to deploy its capital extra successfully and in better-performing markets. It is going to additionally sharpen the agency’s deal with the Vodafone Enterprise, a key development space and one the place efficiency is steadily bettering.
As chief government Margherita Della Valle commented right now: “Our B2B service income development already reached 5% [between October and December] and we’re gaining share in opposition to all our major opponents.”
A inventory I’m aiming to purchase
Vodafone’s asset gross sales could be at an finish. However the onerous work isn’t over but: the FTSE agency nonetheless has rather a lot to do to show round its German operations. Service revenues had slumped following new legal guidelines on bundle bundling.
However buying and selling right here has been gaining momentum extra just lately, with revenues in its core area rising once more within the December quarter.
Telecoms corporations like this have terrific development alternatives because the world turns into more and more digitalised. And Vodafone’s transformation programme offers it a good chance to capitalise on this. I’ll be seeking to purchase the FTSE agency for my portfolio after I subsequent have money to speculate.
