Vodafone’s price progress
In the three years between the start of 2010 and the end of 2012, shares in Vodafone (LSE: VOD)(NASDAQ: VOD.US) traded between 137p and 190p. For much of that time, the normal trading range for the stock was much narrower, typically trading between 165p and 180p.
2013 has seen a dramatic change. Beginning the year at 155p, the shares have risen consistently. Earlier this week they traded as high as 231p.
A series of events has led investors to dramatically re-appraise the value of Vodafone shares for the better. The trouble is, the most optimistic scenario for the shares has already happened. This leaves me wondering whether the shares are still worth owning.
Why the big rises?
Sentiment toward Vodafone changed when the group began receiving huge dividends from its US joint venture Verizon Wireless. Despite the fact that these payments were not guaranteed, some investors were convinced that the cashflows would continue.
This was followed by noises from Vodafone’s partner in Verizon Wireless, stating that they would like to buy out Vodafone’s stake.
In August, Vodafone announced that it was in discussions to sell. This pushed the shares through their previous 190p barrier to close at 206p. When the deal was confirmed, the shares hit 213p.
Life after Verizon Wireless
The deal will see around 112p per share returned to Vodafone shareholders, likely in the first quarter of 2014. The company has also pledged to declare an 11p dividend for the year and that this payout will be increased in the future.
Assuming that the share price will lose 112p following this one-off payment, that will leave a company with a high quality earnings stream offering an 11p dividend.
If we reduce the current share price by 112p and apply an 11p dividend to what remains, that suggests that Vodafone shares offer a forward yield of 9.3%.
Verdict
With mobile computing on the rise globally, there is a great opportunity for Vodafone to establish strong, new income streams in developing markets. On the other hand, trading in its mature European markets has been subdued and the telecom regulators apparently hostile.
All this considered, I believe that there remains a case for Vodafone shares to trade around 25% higher than they do today. The shares remain some way off being overpriced.