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Vodafone (LSE:VOD) shares have traded in pennies for almost all of 2023. Impacted by declining revenues in core European markets and the corporate’s excessive web debt burden, the Vodafone share worth has trailed the FTSE 100 index’s efficiency this 12 months.
So, what return would I’ve made out of a £1,000 funding within the telecoms big at the beginning of January? And does a mighty 10.2% dividend yield tempt me to purchase the inventory at present, regardless of poor current returns?
Let’s discover.
Share worth fall
Vodafone shares began the 12 months buying and selling at just below 86p. After briefly breaching the £1 barrier in February, the inventory’s worth has spiralled downwards. As I write, it stands simply above 77p.
With £1k to take a position in the beginning of 2023, I may have purchased 1,164 shares. At present, my shareholding could be price £898.96 — that’s a ten% decline.
Nevertheless, I might even have earned some passive earnings, softening the blow. Including £44.97 in dividend funds would carry the whole determine as much as £943.93.
Granted, that’s nonetheless a damaging return over the interval and long-term shareholders have been dissatisfied with a 52% share worth fall over 5 years.
Weak revenues and excessive debt
Vodafone’s difficulties on the European continent have contributed to the share worth weak point. Though group service income progress reached 1.8% in Q1 FY24 (excluding Turkey), that determine has been damaging for 5 consecutive quarters in Germany, Italy, and Spain.
| Market | Q1 service income progress |
|---|---|
| Germany | -1.3% |
| Italy | -1.6% |
| Spain | -3.0% |
Coupling income weak point throughout main European markets with the corporate’s €33.4bn web debt mountain, there are main dangers on the horizon.
Vodafone’s web debt degree seems too excessive to me measured in opposition to a market cap of £20.83bn. This has been a longstanding situation and is a big motive why I haven’t invested within the shares earlier than.
Progress alternatives
In brighter indicators for the long run, service income progress elsewhere in Europe lifted the area into constructive territory in Q1 and the UK continues to impress, marked by a 5.7% enchancment.
Africa stays the star performer — and the corporate’s most enjoyable progress alternative for my part. Rising smartphone penetration throughout key African markets bodes nicely for future demand.
Vodafone has loved notable success in Egypt, with elevated information utilization and an increasing buyer base underpinning 27.6% service income progress in Q1.
Past this newest achievement, Vodafone additionally owns M-PESA, which it describes as “Africa’s most profitable cellular cash service and the area’s largest fintech platform“.
Ought to I purchase this inventory?
Though Vodafone shares have did not impress this 12 months, the ten.2% dividend yield on provide seems interesting. Plus, there are causes to be optimistic concerning the progress outlook in Africa, in addition to the corporate’s long-awaited merger with Three, which may have blockbuster potential.
That mentioned, the tie-up nonetheless faces scrutiny from competitors regulators — and occupying a dominant place available in the market brings dangers in addition to alternatives. An extra concern is the long-term sustainability of the dividend in mild of Vodafone’s weak stability sheet.
For now, the inventory will stay on my watchlist as I concentrate on discovering different FTSE 100 shares to purchase. I’ll monitor the corporate’s future outcomes and information concerning the merger with an in depth eye.
