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The chart for Vodafone (LSE: VOD) shares over the past five years tells a scary story. The mobile phone giant’s share price has fallen 41.8%. And that’s enough to turn a £10,000 investment into just £5,820.
Well, it wouldn’t be quite that bad. Shareholders would have had some dividend cash to help ease their pain. I’m seeing something of a parallel with BT Group a few years previously.
BT paid dividends it couldn’t afford and that contributed to share price falls. The dividend was slashed and the company hit a key performance milestone a year ago. And the share price has been rising since.
Turnaround time?
Vodafone has also cut its dividend, slashing it by 50% for the 2024-25 year. Might we be about to see the share price reversing its slump just like BT’s is doing?
BT’s new lease of life came when the company reported in May 2024 that it had passed the point of peak capital expenditure for its broadband rollout and hit its cost-saving targets a year ahead of plan. It was what CEO Allison Kirkby called “the inflection point on our long-term strategy“.
At Vodafone though, we don’t see the same key focus as BT’s broadband project. And that has its plus and minus points. On the good side, I see it as meaning more baskets with fewer eggs in each one. Less dependence on a single project has to be better for long-term safety.
But the not-so-good side is that there isn’t the same clear and measurable pivot point that BT had in its sights.
“Vodafone has changed“
With full-year results on 20 May, CEO Margherita Della Valle said: “Since I set out my plans to transform Vodafone two years ago, Vodafone has changed“.
We already knew of the dividend cut, and the company also announced a new share buyback worth up to €500m. The update spoke of “a strong balance sheet”. But we saw net debt still at €22.4bn (£18.9bn). Though way down from €33.2bn a year previously, it was about the same as the company’s market cap — just like at BT.
A possible turning point for me was the statement: “We are now entering a phase of medium-term, sustainable adjusted free cash flow growth“.
One drawback I see is that forecasts don’t show much in the way of earnings growth. We should see profit for the 2025/26 year, and analysts see earnings rising the year after. But then there’s a small dip on the cards for 2027/28.
Bullish signs
The year just ended was one of disposals and reorganisation. And while that was welcome, Vodafone did say “we still have much more to do“.
Dividends should now be covered by earnings, so there’s less risk there. And I do think we could be in for a better decade ahead.
But I want to see the final outcome of the restructuring, and see earnings growth back on the forecasts. When those happen, I’ll consider buying. I’m too risk-averse to take the plunge just yet, even if I’m perhaps missing a buying opportunity now.
