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Director dealings: Vodafone, Deliveroo, FirstGroup

John Choong — Sat, 20 Aug 2022 07:00:15 +0000

Director dealings are essentially insider transactions for shares between directors and the companies they work for. These dealings are always made public, and are often considered a good indicator of a company’s future prospects. However, they don’t get nearly as much attention as other company news due to their complex nature. Nonetheless, here I’m breaking down this week’s biggest director dealings from three FTSE firms.

Vodafone

VodafoneÂ (LSE:VOD) is a British multinational telecommunications company. It predominantly operates services in Asia, Africa, Europe, and Oceania. The company runs at least some form of operations in over 150 countries.

Following lacklustre numbers from its Q1 trading update, the share price dropped by 5%. It has stayed there since. Despite that though, it’s a sign of confidence when a high-ranking director purchases shares. And this week, Vodafone’s Chairman decided to reinvest his dividends into buying more Vodafone shares.

Name: Jean-FranÃ§ois van Boxmeer
Position of director: Chairman
Nature of transaction: Dividend shares
Date of transaction: 10 August 2022
Amount bought: 9,975 @ Â£1.21
Total value: Â£12,069.75

Deliveroo

Deliveroo (LSE: ROO) is a British online food delivery company. It operates in over 200 locations across the UK, and is the second-biggest food delivery platform in the country. It also operates internationally with operations in France, Singapore, Australia, and many more.

In this weekâs transaction, a director exercised his option to redeem stock compensation. Following this, he opted to sell approximately half of the shares received to cover tax liabilities. That being said, it’s worth noting that this is a monthly occurrence from the company’s CFO. As such, these actions shouldn’t impact investor sentiment surrounding the stock. It’s worth pointing out, however, that the sale of these shares dilute shareholders’ value. This is because there are now more Deliveroo shares floating on the market.

Name: Adam Miller
Position of director: Chief Financial Officer
Nature of transaction: Award shares
Date of transaction: 15 August 2022
Amount vested: 83,400 @ Â£0.96
Total value: Â£80,247.48

Name: Adam Miller
Position of director: Chief Financial Officer
Nature of transaction: Sales of shares to cover tax liabilities
Date of transaction: 15 August 2022
Amount sold: 40,402 @ Â£0.95
Total value: Â£38,381.90

FirstGroup

FirstGroup (LSE: FGP) is a British multi-national transport group. The FTSE 250 firm is the leading transport operator in the UK and North America. It is widely known for being a provider of public transport, especially buses in the UK.

Rather surprisingly, its shares have managed to outperform the wider UK market index this year. But after the share price took an 11% hit last week, a couple of large director dealings were carried out. The first involves a non-executive director purchasing a substantial number of shares. But what really caught my eye were the conditional share awards that could be awarded to FirstGroup’s CEO and CFO. This should shore up investors’ confidence in the stock, as the group’s management will have to perform and meet investors’ expectations in order for these award shares to vest.

Name: Sally Cabrini
Position of director: Non-Executive Director
Nature of transaction: Purchase of shares
Date of transaction: 17 August 2022
Amount vested: 10,000 @ Â£1.15
Total value: Â£11,482

Name: Graham Sutherland
Position of director: Chief Executive Officer
Nature of transaction: Award shares
Date of transaction: 18 August 2022
Amount vested: 972,590 @ Nil
Total value: N/A

Name: Ryan Mangold
Position of director: Chief Financial Officer
Nature of transaction: Award shares
Date of transaction: 18 August 2022
Amount vested: 1,003,226 @ Nil
Total value: N/A

Types of Shares

To provide context, there are a few types of shares that can be purchased by directors. Some directors opt to purchase shares via the open market. Having said that, directors also have the option to purchase and receive shares via a share incentive plan (SIP).

A SIP is an employee plan for companies within the UK to flexibly award shares to employees. Publicly listed companies normally exercise this option because itâs tax-efficient for both the employer and its employees.

Types of shares within a SIP

In this week’s set of director dealings, a few types of SIPs were exercised. For starters, Vodafone’s Chairman opted to purchase more Vodafone shares from the dividends he received from his current shares.

On the other hand, Deliveroo’s CFO decided to exercise the option of redeeming his restricted stock units. These are a form of award shares which allow for directors to redeem shares at a later date, as either as part of their salary or based on meeting performance obligations.

FirstGroup’s CEO and CFO were awarded shares as well, but these will only be vested once performance targets are met. In this case, more than 1.5m shares are up for grabs between the two directors under the operator’s long-term incentive plan (LTIP). The LTIP award will normally vest on the third anniversary of the date of award, subject to satisfaction of performance conditions and continued employment. The award is also subject to an additional holding period of two years from the date on which the award vests.

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John Choong has no position in any of the shares mentioned. The Motley Fool UK has recommended Deliveroo Holdings Plc and Vodafone. 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.

Director dealings: Rolls-Royce, Lloyds, Vodafone

John Choong — Sat, 16 Jul 2022 07:00:12 +0000

Rolls-Royce

Rolls-Royce (LSE: RR) a British multinational aerospace and defence holdings company. It is one of the world’s largest maker of aircraft engines, and operates in four different segments. These include civil aerospace, power systems, defence, and new markets. This week, four director dealings were carried out, albeit in small volumes.

Name: Lee Hsien Yang
Position of director: Non-Executive Director
Nature of transaction: Purchase of shares (Share purchase plan)
Date of transaction: 7 July 2022
Amount bought: 1,184 @ Â£0.83
Total value: Â£950.59

Name: Wendy Mars
Position of director: Non-Executive Director
Nature of transaction: Purchase of shares (Share purchase plan)
Date of transaction: 7 July 2022
Amount bought: 2,198 @ Â£0.83
Total value: Â£1,820.38

Name: Sarah Armstrong
Position of director: Chief People Officer
Nature of transaction: Purchase of shares (Share purchase plan)
Date of transaction: 7 July 2022
Amount bought: 147 @ Â£1.02
Total value: Â£149.91

Name: Rob Watson
Position of director: President (Rolls-Royce Electrical)
Nature of transaction: Purchase of shares (Share purchase plan)
Date of transaction: 7 July 2022
Amount bought: 147 @ Â£1.02
Total value: Â£149.91

Lloyds

Lloyds (LSE: LLOY) is one of Britainâs biggest financial institutions. Its brands include Lloyds itself, Halifax, and Bank of Scotland. It earns the bulk of its revenue from mortgage loans. A large number of director dealings occurred with Lloyds shares this week.

Name: Joanna Harris
Position of director: Interim Group Director
Nature of transaction: Partnership shares and matching shares
Date of transaction: 11 July 2022
Amount bought: 296 @ Â£0.42
Amount received: 106 @ nil
Total value: Â£124.91

Name: Antonio Lorenzo
Position of director: Chief Executive Officer (Scottish Widows)
Nature of transaction: Partnership shares and matching shares
Date of transaction: 11 July 2022
Amount bought: 355 @ Â£0.42
Amount received: 106 @ nil
Total value: Â£149.81

Name: Janet Pope
Position of director: Chief of Staff and Group Director of Sustainable Business
Nature of transaction: Partnership shares and matching shares
Date of transaction: 11 July 2022
Amount bought: 296 @ Â£0.42
Amount received: 106 @ nil
Total value: Â£124.91

Name: Stephen Shelley
Position of director: Chief Risk Officer
Nature of transaction: Partnership shares and matching shares
Date of transaction: 11 July 2022
Amount bought: 355 @ Â£0.42
Amount received: 106 @ nil
Total value: Â£149.81

Name: Andrew Walton
Position of director: Group Corporate Affairs Director
Nature of transaction: Partnership shares and matching shares
Date of transaction: 11 July 2022
Amount bought: 71 @ Â£0.42
Amount received: 105 @ nil
Total value: Â£29.96

Vodafone

Vodafone (LSE: VOD) is is a British multinational telecommunications company. It predominantly operates services in Asia, Africa, Europe, and Oceania. A significant director exercised their options to purchase Vodafone shares this week.

Name: Nick Read
Position of director: Chief Executive Officer
Nature of transaction: Purchase of shares (Vodafone Sharesave Plan)
Date of transaction: 11 July 2022
Amount bought: 22,352 @ Â£1.01
Total value: Â£22,499.52

Types of shares in a SIP

To provide context, there are a few types of shares within a company’s share incentive plan (SIP). A SIP is an employee plan for companies within the UK to flexibly award equity to employees. Publicly listed companies normally exercise this option because itâs tax-efficient for both the employer and its employees.

Types of shares within a SIP (Source: BDO.co.uk)

In this week’s dealings, directors at Rolls-Royce opted to purchase shares under a share purchase plan. This is a form of capital raising by Rolls-Royce which offers shareholders the opportunity to apply for new, additional shares.

As for Lloyds, the director dealings occurred with partnership shares and matching shares. Partnership shares give employees the opportunity to buy shares via deductions from their salary, before tax deductions. But where partnership shares are offered, the company can also offer matching shares, as was the case. This can range up to a maximum ratio of two free matching shares per partnership share purchased. Nonetheless, it’s important to note that matching shares must normally be held in a trust for at least three years, and held for five years in order to receive a full tax relief. However, these shares may be forfeited if an employee withdraws their partnership shares from the trust.

Finally, in the case of Nick Read, the CEO exercised his options to purchase shares under the Vodafone Share Save Plan. These options are exercisable five years from the savings contract start date, provided that the required monthly savings were made.

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John Choong has no position in any of the shares mentioned. The Motley Fool UK has recommended Lloyds Banking Group and Vodafone. 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.

I still plan to retire at 65 and I’m banking on UK shares to get me there

Harvey Jones — Fri, 04 Mar 2022 15:54:50 +0000

I don’t want the government to tell me when I can retire, and I reckon that by investing in UK shares I can take the decision into my own hands. I’m relying on the FTSE 100 and FTSE 250 to build the wealth I need to stop work at a time of my choosing.

The state pension age is now 66 for men and women, but from 2026 it will start rising to 67. Then it will rise again to 68, possibly from as early as 2037. It could ultimately climb past 70, to keep it affordable. I like my job but I’m not sure I want to work that long. Building a balanced portfolio of UK shares should mean I don’t have to.

I’ll decide when I retire, thank you

Anybody who believes the state will provide a decent standard of living in retirement is sadly deluded. It’s not going to happen. The UK already spends more than £100bn a year on the state pension, that’s an incredible 12% of total public spending and this proportion will rise as the population ages. Chancellor Rishi Sunak has already scrapped the triple lock once, and he is likely to do it again, in my view. So this is where UK shares come into it.

I’m self-employed, so it’s up to me to build retirement savings in my name. Nobody else is going to do it for me, sadly. I’m starting by building a balanced portfolio covering major markets such as the US and Europe, and sectors such as smaller companies. I don’t know enough about these markets to buy individual stocks, so I rely on low-cost exchange-traded funds (ETFs) and investment trusts to do the job for me. I do know a bit about UK shares, though.

There are three reason why I buy individual UK shares instead of funds.

They give me the opportunity to generate outperformance and beat the market.
Direct equities are more exciting because they can move rapidly (in either direction), and that keeps my interest levels high.
It’s challenging (in a good way)! I like examining UK shares and checking out their potential, then seeing what happens to my stock picks (and how good/bad my judgement is).

Here’s why I’m buying UK shares

Right now, I can see plenty of opportunities out there. I suspect we are on the cusp of a commodity boom, because of that awful war in Ukraine. Rio Tinto tempts me. So does Anglo-American. I feel the financials sector is ready for a comeback, and rising base rates should allow the likes of Barclays and Lloyds Banking Group to widen their net interest margins and boost profits.

UK shares pay some of the most generous dividends in the world. Just look at Vodafone, GlaxoSmithKline, Johnson Matthey, and BAE Systems to name just a few. I will reinvest my shareholder payouts for growth today, and draw them as income when I finally retire. That may be when I’m 65, it may be later. The important thing is that the decision is down to me.

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Harvey Jones doesn't hold any of the shares mentioned in this article. The Motley Fool UK has recommended Barclays, GlaxoSmithKline, Lloyds Banking Group, and Vodafone. 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.

I’m targeting £800 a month passive income from dividends thanks to this forgotten rule

Harvey Jones — Thu, 03 Mar 2022 09:20:06 +0000

I reckon UK dividend stocks are possibly the best way to generate passive income in retirement. Better still, I can take that tax-free inside my Stocks and Shares ISA portfolio. Here’s how I’m going about it.

To generate around £800 a month in tax-free passive income, I need ISA savings of £240,000. How do I know that? Thanks to an often overlooked investment benchmark called the 4% rule. Put simply, this states that if I withdraw 4% of my retirement portfolio as income each year, my pot will never run dry.

Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.

How I’m building a passive income for retirement

The 4% rule assumes average investment growth of 7% a year, including dividends. If I withdraw 4% a year and inflation averages 3%, my portfolio will stay roughly the same size. Of course, none of those figures are guaranteed, but a target of £240,000 in ISAs looks just about doable, at a stretch. And 4% of that is £9,600 a year, or £800 of monthly passive income. It’s not riches, but it’s better than relying purely on the State Pension.

So much for rules. I will also have to knuckle down and build enough ISA savings to generate my target income. There’s still a way to go, but I’m taking advantage of current stock market volatility to top up my portfolio. I need to act fast, because the annual ISA deadline is just one month away, at midnight on 5 April.

The FTSE 100 is one of the best stock markets in the world for dividends, and I’m underpinning my portfolio with a couple of top equity income funds. I’m a long-standing fan of the City of London Investment Trust, and it’s about time I bought it. Its current yield is a rather splendid 4.48%. The ongoing charge is just 0.38%, so I’d get to keep most of that juicy passive income for myself.

I’m also investing in FTSE 100 stocks

City of London has even started to generate some growth, as the FTSE 100 swings back into favour, rising 15.4% in a year. I’ve been investing in the Rathbone Income fund for years. Its yield is lower at 4.06% and charges are higher at 0.75%, so I may rethink this choice, but it has grown steadily for the 15 years I’ve held it, and I’m reluctant to let it go.

To generate the rest of my passive income, I would look to build a portfolio of individual FTSE 100 stocks. I like the look of Lloyds Banking Group right now, as rising interest rates should boost its net lending margins. Yet it still trades at a dirt-cheap P/E of just 6.1 times earnings. The dividend yield is now 4.34%, and I expect that to continue climbing.

Oil giants BP and Shell are rising along with the oil price, and I’d buy them both, along with passive income heroes including mining giant Rio Tinto, financial firms M&G and Phoenix Group Holdings, housebuilder Persimmon and mobile phone operator Vodafone.

Of course, I have to remember that each of these stocks comes with risks, both sector- and company-specific. But I feel that owning a basket of them mitigates some of the risk for me.

I hope that the 4% rule will serve me well when the time comes to retire.

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Harvey Jones holds Rathbone Income but 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.

It’s not just me. Global investors are also rushing to buy dirt-cheap UK shares

Harvey Jones — Fri, 09 Jul 2021 09:13:59 +0000

Buying dirt-cheap UK shares is a key strategy for building a pot of money for my retirement. I like to buy and hold domestic stocks for the long term, to benefit from dividend income and growth.

I particularly like buying when valuations are low, as they are today. I’m not the only one who thinks that. Word has spread far beyond these shores. Overseas investors are clamouring to buy dirt-cheap UK shares. They seem to take a more positive view of their prospects than many British investors.

We have all seen how Morrisons has become a target for no less than three US private equity groups. They’re fighting tooth and nail to buy the UK’s fourth biggest supermarket chain, a stock many Britons were struggling to get excited about. The Morrisons share price had been in a slow decline since peaking at around 324p in December 2011, almost a decade ago.

US investors are hungry for dirt-cheap UK shares

As recently as 18 June, it was idling at 178p. Then US investors stepped up, tempted by its generous dividends, integrated supply chain and store estate ownership. Today, buyers have to pay 266p, some 50% more. Other dirt-cheap UK shares could find themselves in a similar position.

Some reckon Sainsbury’s could be a takeover target, as it has been before. Speculation has even spread to Tesco, although it’s £17bn market-cap makes it rather big to swallow in one gulp. In June, housebuilder St. Modwen Properties succumbed to a £1.25bn offer from Blackstone, while infrastructure investor John Laing Group is being bought by KKR for £2bn.

Dirt-cheap UK shares are in vogue, but I’ve mixed views about this. I remember the hostile Kraft takeover of chocolate maker Cadbury, and the destruction that wrought to a great British institution. Many believe the ARM Holdings sell off was a disaster for British tech. Selling our largest semiconductor manufacturer Newport Wafer Fab to the Chinese also looks questionable.

Buying stocks is never risk free

Yet this activity is also a wake-up call to British investors. Our stock market is full of dirt-cheap UK shares, just like The Motley Fool has been saying for some time. Overseas stock markets that have performed better now look expensive, notably the US. The S&P 500 trades at 21.2 times forecast company earnings, against just 13.7 for the UK.

Naturally, there are still major risks. Brexit still hasn’t completely played out. Nor has the pandemic, as the Delta variant spreads rapidly (and don’t tell me it’ll be the last Covid mutant strain to emerge). If the reopening is delayed again, sentiment will slip. Today’s GDP figures show the UK grew just 0.8% in May, lower than the expected 1.5%.

There are always risks, and they won’t stop me from scouring the market for dirt-cheap UK shares. As you can see from the news, I’m not the only one going bargain hunting.

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

2 FTSE 100 stocks to consider buying this bank holiday weekend

Jamie Adams — Tue, 25 May 2021 14:47:18 +0000

As a long-term investor, the weekend is always a great chance for me to turn off and ignore market noise. It is much easier than on some volatile weekdays when I’m tempted to check up on the FTSE 100 and my portfolio for movement.

Luckily, with the long weekend on its way, I get an extra day to reflect on my portfolio without market movement distracting me. And this weekend, I’ll be deep-diving into these two companies to see if I should buy shares.

Diageo

Diageo (LSE: DGE) has long been one of my favourite holdings — and it’s not just because it owns Guinness. The FTSE 100 share is a strong business that owns some of the most well-known brands on the planet. In the past 12 months, Diageo’s share price has risen more than 18%, from 2,860p to 3,390p today.

There are a number of reasons why I would consider increasing my position in Diageo. As summer rolls in, I’m getting more bullish on Diageo’s position among reopening stocks. Having taken a hit last year as Covid-19 shut restaurants and bars, it has since shown remarkable resilience. Home consumption saw first-half 2021 sales increase 0.9%, including a 10% rise in the UK. This allowed Diageo to maintain a strong £1.58bn profit year-on-year. Now, with vaccinations rolling out and the economy reopening, the company expects operating profit growth to increase by at least 14% this year.

My biggest worry when it comes to Diageo is its rising net debt, which sits at almost £15bn as of December 2020. Should interest rates rise, it could cause the company a headache and reduce its ability to return shareholder value.

Despite this, Diageo remains one of the strongest brands in the world. As life returns to normal and people look to have a good time, I’m thinking that there’s still a lot of potential for its share price.

Vodafone

I’m moving away from alcohol and over to telecommunications for my next stock pick. Vodafone Group (LSE: VOD) has been on my portfolio shortlist for years, but I’ve never taken the plunge. Despite being a top FTSE 100 income stock, I always felt it was too expensive for me.

The leading British telecom giant has seen its share price remain flat in the past 12 months — albeit with some dips and surges in between. At 129p a year ago, now sitting at roughly 128p, there has been little to write home about.

However, Vodafone’s share price fell 10% last week thanks to investor skittishness following its quarterly earnings report. I, for one, actually found the company’s plans quite exciting. CEO Nick Read outlined the company’s plan to invest heavily in its network amid the 5G boom. Despite this resulting in short-term cash burn, I am excited that the company is so open about self-investment. Covid-19 has accelerated global digitisation greatly, meaning demand for the pipes that run the broadband system will grow enormously.

But that doesn’t eliminate the business’s already massive debt pile, which sat at nearly £40bn at the tail end of 2020. This will only be made more worrisome by the company’s 2.6% revenue deficit in 2020.

However, its forward-thinking plans have got me excited, while Vodafone’s recent price drop makes it a more enticing investment opportunity for me.

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Jamie Adams owns shares in Diageo. The Motley Fool UK has recommended Diageo. 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.

Vodafone stock looks pricey but I find it’s 6% yield hard to resist

Harvey Jones — Fri, 19 Feb 2021 08:36:25 +0000

There is no doubt about it, Vodafone Group (LSE: VOD) stock looks expensive judging by today’s price/earnings ratio. That puts it at 27.3 times earnings, almost exactly double the FTSE 100 as a whole, which ended last year at 13.66 times.

While valuation is just one figure I look at when deciding whether to buy a company, I am typically reluctant to invest in any FTSE 100 stock trading at such a pricey figure. Unless it’s an exciting momentum stock, such as JD Sports Fashion or Boohoo Group, which Vodafone definitely is not.

Having said that, there are reasons why I’d consider Vodafone for my portfolio. The first is its forward valuation is a more amenable 15.2 times earnings. That suggests we might see higher earnings next year. So today’s P/E ratio alone won’t put me off.

FTSE 100 income hero

The number that catches the eye when examining Vodafone stock is the dividend yield. Few investors expect significant share price growth from the telecoms giant, given that it’s gone nowhere fast for the last 20 years. They demand income though.

The Vodafone share price spiked to a dizzying 459p on 24 March 2000, directly before the dot com crash. It then crashed to 111p by September 2002 and has gone nowhere slowly since. Today, you can buy it at 131p, which makes it 12% cheaper than a year ago.

Yet in the land of the near-zero savings account, the high-yielding stock is king. Vodafone currently offers a forecast yield of 6.1%. That is more than 33 times the average savings account’s 0.18%. No wonder it remains in demand. The worry is that cover is water thin, at just 1.1, but few analysts expect Vodafone to cut payouts at the moment.

Management preserved the dividend throughout last year’s pandemic, as more than half of the FTSE 100 cut theirs. That was largely because it had already imposed a massive 40% cut, in May 2019. I supported the move at the time, as it made the shareholder payout more reliable. So it’s proved.

Germany is now Vodafone’s largest market, and it has remained strong throughout the pandemic. As a result, management group recently posted only a small decline in third-quarter organic revenues of just 0.3%.

Vodafone stock is mixed bag

Vodafone has been relatively resilient against Covid, boosting digital revenues to offset lost sales on shuttered high streets. However, it’s been knocked by the collapse in international travel, which has hit roaming revenues. This arguably makes it a recovery stock, as it should benefit when people finally start flying again.

Management expects to deliver between €14.4bn and €14.6bn in underlying cash profit this year, which includes €5bn in free cash flow before spectrum and restructuring costs. That eases some of my concerns about its high borrowings. Net debt is stubbornly high at €44bn, dwarfing its €30bn market-cap, and hasn’t fallen much for years.

I’m still tempted to buy Vodafone stock, but I suspect there are more tempting income shares on the FTSE 100 right now.

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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.

I’d buy Vodafone shares today, but first I’d snap up this dirt-cheap FTSE 100 income growth stock

Harvey Jones — Mon, 16 Nov 2020 12:08:46 +0000

Vodafone Group (LSE: VOD) shares are up almost 4% this morning after it maintained its all-important dividend and reported only a small dip in first-half profits. The telecoms giant has been a FTSE 100 income hero for years and currently yields 6.9%. I’d buy it today.

While Vodafone’s shares look tempting, there’s another FTSE 100 income stock I like even more, because it offers growth potential on top of income. But more of that later.

Vodafone’s shares jumped after it posted a 2.3% drop in first-half revenue to €21.4bn. Thanks to cost cutting, EBITDA profits fell just 1.9% to €7bn. This is a strong performance, given the year we’ve had.

Vodafone shares look tempting

The lockdown has hit companies in all sorts of strange ways. Today, Vodafone reported a slump in roaming revenues, as international travel collapsed, while handset sales also fell. Group CEO Nick Read could still hail “resilient” first-half performance and flag up the group’s “good commercial momentum.” This was driven by increased customer loyalty, a rising fixed broadband base, and significant cost savings.

As well as the dividend, full-year guidance has also been maintained. Next step is to arrange the IPO of Vantage Towers, lined up for early 2021. I’d buy Vodafone today but I wouldn’t expect too much share price growth, as it’s idled for years. For me, this is purely a long-term dividend stock, but a jolly good one.

Vodafone will pay out an estimated £2.23bn this year. This makes it the seventh biggest payer on the FTSE 100, making up 4% of total shareholder payouts. My worry is that it’s only covered 0.7 times by earnings, although City analysts point to some good news on this front.

They predict earnings will rise 18% next year and 43% in 2022, lifting the earnings per share to 8.44p. This is higher than the projected 8.34p dividend per share. This gives me the confidence to buy Vodafone at today’s share price, despite its relatively high valuation of 22.2 times earnings.

I’d buy Rio Tinto’s shares first

And the other FTSE 100 dividend stock I’m even more tempted to buy? Mining giant Rio Tinto (LSE: RIO). The business is on course to pay out an incredible £3.8bn in dividends this year, the fifth most generous income payer on the index, making 6.8% of total payouts.

Right now, the Rio Tinto share price gives you a 6.9% yield. This is more generously covered than Vodafone’s, at 1.5 times earnings. Unlike Vodafone, its shares have rebounded strongly since the March crash, and are up more than 50% since then. It helps that Rio Tinto’s largest client, China, is rebounding strongly from the pandemic.

Investors are feeling more optimistic about shares generally after last week’s Pfizer vaccine news, and the mining giant’s sector is a great way to play a global economic recovery. We may have to wait until 2021 for that, but I’m tempted to take a position in Rio Tinto today. I reckon it offers me an attractive entry point, trading at just 9.1 times earnings.

If I could buy just one of these two stocks today, it would be Rio Tinto.

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Don’t panic! A stock market crash is actually the perfect time to buy UK shares

Harvey Jones — Wed, 23 Sep 2020 10:22:04 +0000

I hate to be rude, but if current stock market uncertainty is putting you off buying UK shares, then you really don’t understand investing. The best time to invest in the FTSE 100, or other stock market indices, is at moments like these, when markets are volatile and investors are scared.

That’s totally counterintuitive, but it’s true. In a stock market crash, you have the opportunity to buy your favourite stocks at a much lower price than just a few months ago. If you aim to hold for the long term, you should reap the rewards when UK shares finally recover.

Which they will, given time. History shows that equities have fought back from every crash in the past. It might take a year or two, but they get there in the end.

I’d buy UK shares in troubled times

It’s still a hard lesson to absorb though, and with good reason. People are hard-wired to run from danger. If you saw a 10-ton truck hurtling towards you, you’d quite sensible leap out of the way, rather than rush to give it a hug.

This year’s stock market crash bore down on investors like a runaway truck, but those who ran away were the ones who got flattened. Those who embraced risk were able to buy UK shares a third cheaper on average than just a few weeks beforehand.

The FTSE 100 dipped below 5,000 on 23 March, but quickly jumped 20% after the world’s central bankers unleashed unprecedented stimulus. Those who embraced risk were handsomely rewarded.

Selling UK shares in a crash is the worst thing you can do. That way you crystallise your losses, and lock yourself out of the subsequent recovery. You lose both ways.

The greatest investor of them all, Warren Buffett, reserved his most famous and oft-repeated aphorism reason for this phenomenon: “We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.”

His mantra is easy to repeat, difficult to follow in practice. Human nature is to follow the crowd in times of trouble, rather than go against it. You might think you’re a special case, but so do lots of other people.

Use the FTSE 100 stock market crash

That’s why we keep hammering the message home on the Fool. Monday, for example, was a great day to go shopping for UK shares. The FTSE 100 fell more than 3%, and suddenly a lot of top companies were notably cheaper.

However, you shouldn’t buy FTSE 100 stocks indiscriminately right now. The pandemic is clearly going to drag on, and the economic cost will be incalculable. I would shun the hardest-hit sectors, such as airlines and cruise operators.

Healthcare companies, dividend-paying utilities, and technology and telecom stocks look relatively attractive right now. As do firms selling consumer staples that people still need in a lockdown. Many of these companies will have fallen along with everything else.

The future is uncertain. If it wasn’t, UK shares would cost a lot more.

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£2k to invest? I’d buy this safe-haven stock to retire early

Harvey Jones — Mon, 11 May 2020 09:41:31 +0000

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.

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