Just a couple of years ago, the sentiment behind Vodafone (LSE: VOD) (NASDAQ: VOD.US) was all “Growth, Growth, Growth!” as the mobile phone giant looked poised to conquer the world.
That expansion was driving healthy earnings, and the company had a strong commitment to delivering dividend growth. But that’s all unravelling now, and there’s a whopping 39% cumulative fall in earnings per share (EPS) being forecast for the two-year period ending March 2015.
For the year just passed (results due on 20 May), there’s a 10% EPS fall predicted by the City gurus. On its own that’s not too bad, but it’s compounded by a further 32% slump for the following year!
Sentiment worsening
To make matters worse, sentiment is going the wrong way as well. A year ago, the consensus suggested EPS of 17.6p for the year to March 2015 — now we’re hoping for just 9.6p per share.
And things don’t look great for 2016 either. Although there’s a return to a modest growth of just 4% predicted, that represents earnings of 10p per share — and that’s already down from a figure of 11p being plucked from the air just three months ago.
Dividends looking shaky
What concerns me more is the dividend picture at Vodafone. I used to like the company’s commitment to income-seekers, but when it backtracked in its stance to simply try to pay at least as much as the previous year each year, it started to lose its shine.
We still have modest rises in dividends forecast for this year and next, and we’re still looking at a yield of 5.2% on a share price of 216p. But that should be barely covered by earnings this year (just 1.3 times), and won’t be close to covered next year with forecast EPS set to account for just 85% of the annual payout.
And for 2016, analysts are already predicting a dividend cut — and I see such a cut as inevitable.
Strong Buy?
The bulk of those forecasting are still labelling Vodafone as a Strong Buy, but the proportion is falling and more of them are moving to a Hold stance. In the longer term the consensus might still be right, but I can see a few tough years before Vodafone’s growth gets rolling again.