Should you ditch your shares in Vodafone Group (LSE: VOD) (NASDAQ: VOD.US) ahead of next week’s full-year results, or should you keep the faith with the UK’s largest telecoms company?
After all, it’s not clear how Vodafone intends to replace the earnings capacity it lost in the Verizon sale, despite several chunky recent acquisitions.
Personally, I’m keeping hold of my Vodafone shares, despite the uncertainty, as I believe the business, which is one of the world’s largest mobile telecom operators, remains a good long-term bet, for income and steady growth.
Here are three reasons why I’m sitting tight on my Vodafone shares:
1. Dividend: 11p
In its interim results, Vodafone’s board announced their intention to pay a full-year dividend of 11p, this year.
Analysts’ forecasts are broadly in-line with this, at 11.5p, and it’s extremely unlikely that there will be any surprises in this department when the firm announces its results next week.
At today’s 224p share price, an 11p payout equates to a 4.9% yield, which is good enough for me.
It’s also worth noting that the firm’s share consolidation, post-Verizon, means that this year’s dividend will cost the firm less than last year’s despite rising by 10%. That’s simply because Vodafone now has fewer shares — around 26 billion, compared to 48 billion at the time of last year’s final results.
2. Cash: $35bn
Vodafone no longer has all of the $35bn in cash it kept from the $130bn sale of its stake in Verizon Wireless, as the UK firm has been on the acquisition trail, spending £6bn on Spanish broadband and pay-TV firm Ono, and £1bn on acquiring the remaining shares in Vodafone India.
The firm has also redeemed $5.65bn in debt notes, and may have used some more of the cash to reduce or restructure its finances — but however, you look at it, Vodafone has plenty of cash left to support further acquisitions and several years of dividend payments, if necessary.
3. Profits: £5.0bn
Vodafone’s full-year guidance is for adjusted operating profit (essentially earnings before interest and tax) of £5.0bn.
Analysts’ consensus forecasts point to post-tax earnings per share of around 13p, putting Vodafone on a forecast P/E rating of 17 — not exactly cheap, but not outrageously expensive, either.
Buy, sell or hold Vodafone?
In my view, Vodafone is a hold at the moment. My suspicion is that the group’s near-term growth prospects are poor, although in the long-term I am confident Vodafone will prosper.