Vodafone (LSE: VOD) shares are having an absolute stinker, but frankly there is nothing of news value in that. The global telecoms giant has been a share price disaster for two decades, but investors were willing to overlook that as long as the dividends kept rolling in.

I have been a whisker away from buying Vodafone shares on a number of occasions, but always pulled out at the last minute. With chief executive Nick Read departing under a cloud, I’m glad I did.

Vodafone shares are sliding

Vodafone stock has fallen 15% in the last month, at a time when the FTSE 100 has jumped more than 10%. Measured over five years, it is down 60%.

Yet even that dismal figure fails to convey the misery of being a long-term Vodafone shareholder. In March 2000, more than 22 years ago at the height of the dot.com boom, its shares peaked at 548.20p. Today, they trade at around 86p.

Vodafone survived the tech crash because there was a proper business behind all the hype, and management set out to exploit it by turning the London-listed group into a global telecoms giant.

It carried investors along by lavishing them with dividends, while the share price went nowhere very, very slowly. In July 2002, Vodafone shares found a bottom at around 135p. In July this year, they were still trading at roughly the same level. Not now.

Investors have stopped burying their heads in the sand. Vodafone’s go-nowhere share price was always a sign of a misfiring company. Management has made colossal errors, such as £15.8bn takeover of Liberty Global’s cable network in Germany, lined up by ex-boss Vittoria Colao, but completed in 2019 after his departure.

Germany is a tough consumer market and Vodafone’s poor customer service didn’t help. The sprawling multinational giant seems to be failing on too many fronts. Management recently downgraded full-year guidance in yet another disappointment. Although underlying cash profit before leases is still on course to top €15bn.

That 8.7% yield isn’t enough

First-half results show Vodafone’s net debt increased by €3.9bn to €45.5bn. That’s about £40bn for a company with a market-cap of £23bn. That is worse than it looks, as the maturity dates stretch to 2059 and the group still has an enterprise value of around €90bn.

Some investors have pinned their hopes on Vodafone consolidating close to home, but any hook up with Three UK seems likely to fall foul of competition regulators.

Vodafone’s best hope is to rein in its ambitions and get back to basics. Cut costs, keep customers happy, secure the bottom line and pay down that debt. If the new CEO does all of that, today’s valuation of 9.4 times earnings could pay off for far-sighted investors.

Vodafone still pays a stunning dividend, one of the finest on the FTSE 100, yielding 8.7%. Cover is thin at 1.2, but at least it is covered. Personally, I don’t trust it. It has been cut twice in the past 10 years and could be hacked again as management battles to turn Vodafone round.

It can fight on without me. I like some risk in my portfolio, but not this much.

The post Is it finally time to give up on Vodafone shares for good? appeared first on The Twelfth Magpie.

More reading

• Here are 2 FTSE shares I’m excited about this July — and 1 I’m avoiding
• Which will reach £2 first, Lloyds or Vodafone shares?
• 3 value stocks under £3 to consider in June

Harvey Jones doesn't hold any of the shares mentioned in this article. The Motley Fool UK has recommended 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 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

Vodafone (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-François van Boxmeer
• Position of director: Chairman
• Nature of transaction: Dividend shares
• Date of transaction: 10 August 2022
• Amount bought: 9,975 @ £1.21
• Total value: £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 week’s 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 @ £0.96
• Total value: £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 @ £0.95
• Total value: £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 @ £1.15
• Total value: £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 it’s tax-efficient for both the employer and its employees.

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.

The post Director dealings: Vodafone, Deliveroo, FirstGroup appeared first on The Twelfth Magpie.

More reading

• Here are 2 FTSE shares I’m excited about this July — and 1 I’m avoiding
• Which will reach £2 first, Lloyds or Vodafone shares?
• 3 value stocks under £3 to consider in June

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 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.

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 @ £0.83
• Total value: £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 @ £0.83
• Total value: £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 @ £1.02
• Total value: £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 @ £1.02
• Total value: £149.91

Lloyds

Lloyds (LSE: LLOY) is one of Britain’s 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 @ £0.42
• Amount received: 106 @ nil
• Total value: £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 @ £0.42
• Amount received: 106 @ nil
• Total value: £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 @ £0.42
• Amount received: 106 @ nil
• Total value: £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 @ £0.42
• Amount received: 106 @ nil
• Total value: £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 @ £0.42
• Amount received: 105 @ nil
• Total value: £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 @ £1.01
• Total value: £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 it’s tax-efficient for both the employer and its employees.

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.

The post Director dealings: Rolls-Royce, Lloyds, Vodafone appeared first on The Twelfth Magpie.

More reading

• Is there any value left in Lloyds shares now they’re over £1?
• After huge new nuclear deals, are Rolls-Royce’s sub-£15 shares set to power higher?
• Here are 2 FTSE shares I’m excited about this July — and 1 I’m avoiding
• Here’s how much I think Rolls-Royce shares will be worth by the end of 2027
• Could small modular reactors take Rolls-Royce shares to the next level?

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.

Inflation hit a new high of 6.2% in February. Vodafone (LSE: VOD) has a 6% dividend yield and is outperforming the wider UK market index with an 8% year-to-date gain. Today, I will be assessing whether this FTSE 100 stock has a place in my portfolio.

Paying dividends

High-dividend paying companies are infamous for compensating for their underperformance with large payouts. This is often seen in industries that have high levels of uncertainty or headwinds, such as metal commodities and tobacco.

However, Vodafone has managed to buck the trend so far this year. The British telecommunications company pays one of the UK’s highest dividends. In fact, it is among the top 25% of dividend payers in the UK. The payout rounds up to approximately €0.09 or £0.07 per share.

Furthermore, the Vodafone share price has also outperformed the FTSE 100 by a rather solid 7% so far this year. The surge in its share price came after its better-than-expected Q3 results. For that reason, Vodafone does look like a promising passive income stock, at least for the short term.

Dial up growth

Nonetheless, as a long-term investor, I have a strong interest in a company’s future prospects. I always look for companies that can sustain a continued level of earnings growth, even if they don’t pay dividends.

Although revenue growth from Vodafone’s most recent quarterly trading update was positive, a 3.1% annual growth rate does not entice me. With that being said, there are also positives. Most notably, revenue growth was impressive in Egypt (18.5%) and Turkey (22%). However, these two countries together only contribute 9% of the group’s total service revenue. Also, Italy (-1.3%) and Spain (-1.6%), which each contribute 20% of total service revenue, saw declines.

While I have no doubt that Vodafone has a path to recovery in a post-pandemic world, just how much it can recover by remains a question. The company’s annual earnings have been extremely volatile, sliding in and out of profitability. Revenue has been on a decline since 2015. As such, I think Vodafone’s growth prospects are limited, and so are its future dividends.

Top up your balance

Vodafone’s dividend of 6% is not well covered by its earnings. This all brings me to raise the most worrying factor about Vodafone — its balance sheet. With an extremely high level of debt and declining cash levels, the British telecommunications company does not seem to have a bright future ahead. Moreover, with interest rates continuing to rise, Vodafone is going to find it difficult to pay off all that debt without much growth. In addition, its dividend payments have fallen over the past 10 years.

Even if I was a dividend investor, I would be skeptical of receiving a healthy level of dividend payments from Vodafone for the medium to long term. I am staying clear of this FTSE 100 stock and won’t be buying it for my portfolio anytime soon.

The post This FTSE 100 stock could earn me passive income with a 6% dividend yield appeared first on The Twelfth Magpie.

More reading

• Here are 2 FTSE shares I’m excited about this July — and 1 I’m avoiding
• Which will reach £2 first, Lloyds or Vodafone shares?
• 3 value stocks under £3 to consider in June

John Choong has no position in any of the shares mentioned at the time of writing. The Motley Fool UK has recommended 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.

FTSE 100 telecommunications giant Vodafone (LSE: VOD) was the most popular buy among Hargreaves Lansdown clients last week. Should I be filling my boots too? Here’s my take.

Why is Vodafone so popular?

Perhaps the most prominent reason for Vodafone’s sudden popularity is that it’s well-placed to benefit from the current rotation into value stocks. Interestingly, pharma giant GlaxoSmithKline, power provider National Grid and Vodafone’s peer BT have also been in big demand.

With the possibility of interest rates rising faster than expected, I fully appreciate why some would seek to ride this (temporary) wave.

Let’s not forget that Vodafone is a favourite among dividend investors as well. A yield of 5.4% is clearly an awful lot better than I’d get from a typical cash savings account. It’s also very attractive, considering the rising cost of living. 

Can this momentum last?

As a Foolish investor, I’m not interested in owning stocks for only a few days before dumping them. I’ll leave that to the traders who are happy to trust their ability to time the market. I know this is something I simply can’t do. So, I’m asking whether Vodafone stock is good enough to earn a spot in my portfolio for years.

In some ways, I think it is. Due to the nature of what it does, Vodafone possesses defensive characteristics that many companies would envy. It’s the largest mobile and fixed network operator in Europe and owns a highly valuable brand. It also possesses the continent’s fastest-growing 5G network.

That’s encouraging given the global 5G services market is expected to achieve a compound annual growth rate of 46% between 2021 and 2028. 

One might also argue that we’re only at the beginning of this stock’s recovery. Vodafone’s share price may be close to its 52-week high, but it’s still not even back to pre-pandemic levels. 

Costly FTSE 100 business

Having said this, I’m also of the opinion that there are far better businesses to buy than Vodafone. 

Considering just how costly it can be to keep its infrastructure in good working order (and update it when required), returns on capital are unsurprisingly low. That’s problematic, considering the best stocks to own over the long term tend to be those that bring in a lot of cash relative to the investment required. Margins are also pretty slim in this line of work. 

Then there’s the price I’m being asked to pay. Sure, a valuation of 16 times earnings isn’t unreasonable. But nor is it screamingly cheap, considering the amount of debt carried by the company.

Despite highlighting its income credentials earlier, it’s important to note that Vodafone has a consistently inconsistent track record when it comes to hiking its annual dividend. Personally, I’d much rather cash returns were modest but growing every year. This is more indicative of a company in rude health.

My verdict

Having endured an awful 2021, recent activity suggests Vodafone could be in for a better 2022. I can most definitely see the appeal of buying now if I were concerned about the short-term global economic outlook.

As someone with time on my side however, I’m sticking to snapping up quality growth stocks and funds while they’re on sale. Just like Warren Buffett suggests.

The post Investors are piling into this FTSE 100 stock. Should I buy too? appeared first on The Twelfth Magpie.

More reading

• Here are 2 FTSE shares I’m excited about this July — and 1 I’m avoiding
• Which will reach £2 first, Lloyds or Vodafone shares?
• 3 value stocks under £3 to consider in June

Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended GlaxoSmithKline, Hargreaves Lansdown, 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.

Growth prospects

Dividend growth is often contingent on company growth. Unfortunately, Vodafone has seen extremely little of that over the past few years, with revenues falling from €47.6bn in 2017 to €43.8bn last year. Profitability has also been inconsistent. This has strained the Vodafone share price, which has fallen from 235p at the end of 2017 to its current price of 122p. The limited growth may also lead to the dividend being cut at some point, which is a risk to note.  

But there are some signs that growth may be returning. Indeed, in the recent first-quarter trading update, revenue rose over 3%. There was also extremely promising news from Africa, where the number of customers rose 10% to over 180m. The Mobile Money sector in the area also rose strongly, with transaction volumes increasing 45% year-on-year. Therefore, Africa is seen as a major growth opportunity and there is hope that profits can rise. This will mean that the dividend can remain at current levels, or even rise further. If the company can achieve profits growth, the Vodafone share price is also likely to rise.

Financial situation

For the dividend to be paid, it is also important for companies to have a strong balance sheet. This is what worries me about Vodafone. In fact, net debt has reached over €40.5bn and this will need paid off at some point. This may be at the expense of the current dividend and Vodafone shares would likely suffer as a result.  

Indeed, Vodafone is expected to have free cash flow of €5.2bn for the upcoming year, yet I feel that this will not be sufficient. This is because it also faces around €8bn of cash calls and capital expenditures are rising due to investment in the 5G network. Last year, the group also spent €2.4bn on equity dividends, which is an added expense to consider. This means that it may have to issue more debt to pay the dividend, which is a sign that the dividend is unsustainable.

Will the dividend tempt me into buying Vodafone shares?

Although 6.3% is a very strong yield, I would not buy Vodafone as a dividend stock. This is because the dividend cover looks extremely weak, and there is potential for a dividend cut. If the dividend is not cut, I believe that this would be at the expense of the rest of the business, especially if debt is used. Accordingly, I cannot see significant upside potential in Vodafone shares. The dividend is not enough to persuade me to buy.

The post Would I buy Vodafone shares for the 6% dividend? appeared first on The Twelfth Magpie.

More reading

• Here are 2 FTSE shares I’m excited about this July — and 1 I’m avoiding
• Which will reach £2 first, Lloyds or Vodafone shares?
• 3 value stocks under £3 to consider in June

Stuart Blair 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.