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After releasing half-year results on November 11, Vodafone (LSE: VOD) shares rose to a 52-week high. The share price is up around 50% from levels in April. Performance was strong, revenue was increasing and profit and cash flow came in at the upper end of guidance. And the firm upped its dividend for the first time in years.
With good news on all fronts, investors might wonder where the 94p share price will go from here. It is, remember, trading at a massive discount if we compare it to a previous high of over £5. Could Vodafone be one of the FTSE 100‘s best bargains? Or is this a ‘dead cat bounce’ from a stock that should be avoided at all costs?
Early days
Under the newish leadership of Margherita Della Valle (appointed CEO in April 2023), Vodafone is aiming for a major turnaround. This has involved job cuts, integrating AI, selling off weak-performing parts of the business and doubling down on the stronger parts. The latest news suggests things are heading the right direction.
Germany is Vodafone’s biggest market; therefore a recent return to growth there is very positive indeed. Africa showed strength too in a growing market. Competitor in the region Africa Airtel being up 158% this year shows what might be possible there.
The UK news revolves around the recently completed merger of Vodafone UK and Three UK. The new entity, labelled VodafoneThree, was only created in June. It’s still early days here but this could be yet another avenue for growth.
Good news
The most pleasing news for investors came from its announcement on dividends and buybacks. The share price jumped 8% on the day, giving some idea what the markets thought of it.
Dividends-wise, Vodafone is moving back to a progressive dividend policy. In other words, the dividend should slowly rise in the years ahead. The yield stands at 5.08% which puts it among the higher payers of the FTSE 100 already. This comes after years of barely affordable dividends that ultimately led to a large reduction.
Dividends are a nice ‘cash in hand’ benefit to owning a stock, but they don’t have the same effect on the share price as buybacks. Vodafone confirmed another €500m is being put towards share buybacks. The total package will be €4bn by the time it’s finished, a decent sum compared to the firm’s market cap of €25bn. This could push the share price upwards too.
I remember writing about this stock a couple of years ago and concluding it was in a pretty rough place. Things look much better now. I’d say it’s a stock investors may wish to consider. As for my own decision, I still think there are better opportunities out there at the moment for the type of portfolio I’m trying to build.
