What You Were Buying Last Week: Vodafone Group
Jun 12th 2013 4:12PM
Updated Jun 12th 2013 4:45PM
LONDON -- One of Warren Buffett's famous investing sayings is "be fearful when others are greedy and greedy 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 buying recently might well provide us with some ideas for good investments.
So, in this series of articles, we're going to look at what customers of The Motley Fool ShareDealing Service have been buying in the past week or so, and what might have made them decide to do so.
The share price of telecoms giant Vodafone Group hasn't had a bad year so far. Despite some up and downs -- and the downs have been quite large at times, with an 8% slide over the course of 10 days in February, prompted by city super-investor Neil Woodford selling his Invesco Perpetual High Income fund's holdings in the company -- it's up almost 22% in 2013.
Indeed, anyone who bought at the bottom of the post-Woodford-sell-off trough has enjoyed a near 18% rise in the value of their investment in just four months, and even those who bought just before the slide have seen their stake rise by almost 9%. And there are clearly people who think Vodafone is still worth buying, since it was in the No. 3 position in our latest 'Top Ten Buys' list.*
One of Vodafone's big attractions as an investment has long been its dividend. While its share price may have risen just over 25% in the past five years, comfortably beating the FTSE 100's meagre 10%, it's also paid out a handsome dividend of 5% or more each year over the same period, and has increased the pay-out by 7% every year over the last four. If reinvested, those dividends would have appreciably enhanced the value of a shareholding in Vodafone.
However, in its final results for the year ended March 31, 2013, Vodafone quietly slipped in a change to its dividend policy. After four straight years of at least 7% increases in its pay-out, the board announced that it now only "aims at least to maintain the ordinary dividend per share at current levels." That might well give income-seeking investors pause for thought, although even under the new policy the forward yield is around 5.3%, which is well above the FTSE 100 average.
Perhaps something other than the dividend attracted the attention of last week's buyers? Well, there are the "it's on, it's off, it's on again" rumors about Verizon Communications buying out Vodafone's 45% stake in Verizon Wireless. That could provide Vodafone's with a massive windfall of 60 billion pounds or more -- that's around two-thirds of its current market cap.
And while it would starve the company of some potentially hefty dividends from Verizon Wireless, it would also remove the nagging uncertainty about whether a dividend will actually be paid at all, an uncertainty that majority shareholder Verizon Communications (which makes the decision to pay out or not) is using to force Vodafone's hand into selling up.
There's also the possibility that Vodafone will still launch a bid for Germany's biggest cable operator, Kabel Deutschland, despite having reached an agreement with Deutsche Telekom in May, under which Vodafone can offer broadband and television services via the German phone company's network. If successful, a takeover of Kabel Deutschland would increase Vodafone's access to a major pay-TV and broadband services marketplace, augmenting its mobile provision, and also provide greater potential for business services than the Deutsche Telekom deal allows.
Update: Vodafone announced this morning that it has made a "preliminary approach" regarding a possible offer for Kabel Deutschland, but that "there is no certainty that any offer will ultimately be made nor as to the terms on which any such offer might be made." The market may not have liked the news, as Vodafone is currently down 4.5%, although some of the drop is because it went ex-dividend today.
And if it were to end up with a bulging war chest from selling its interest in Verizon Wireless, further strategic acquisitions could follow, given CEO Vittorio Colao's statement earlier this year that Vodafone would launch "unified" service packages -- i.e., TV, Internet, and phone bundles -- and that he was looking at a number of acquisition targets for delivery.
Of course, no matter what other people were doing last week, only you can decide if Vodafone is currently a potential buy.
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*Based on aggregate data from The Motley Fool ShareDealing Service.
The article What You Were Buying Last Week: Vodafone Group originally appeared on Fool.com.Jon Wallis owns shares of Vodafone. The Motley Fool recommends Vodafone. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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