The low Vodafone share price and 10% dividend mean I just might buy

I’ve watched the Vodafone (LSE: VOD) share price slump. It’s down 50% in the past five years, and that’s scary.

We saw net debt of €36.2bn (£31bn) at the halfway stage. That’s 1.6 times the total market cap of £19bn!

And Vodafone has been paying big dividends, not covered by earnings, while the shares have been sliding. One to avoid, then? Hmm, I’m starting to rethink it.

Reasons to rethink

It pays to revisit our thoughts. Assuming a firm we like will always be good can be a big mistake, and we need to keep an eye open for problems.

But also, assuming those we don’t like will always be bad can lead us to some missed opportunities.

I’ve already thought about BT Group again. I’ve shunned it for similar reasons. Paying high dividends when debts are huge just doesn’t seem right.

But if BT really can keep pumping out 7% dividends every year, why worry? Why not just take the cash? With Vodafone on a 10% dividend yield, I’m taking a new look here too.

Ignore Warren Buffett?

Billionaire investor Warren Buffett famously said that it’s “far better to buy a wonderful company at a fair price than a fair company at a wonderful price“.

I’m sure he’s right. But we shouldn’t slavishly follow him any more than anyone else. And there has to be a good price to buy any stock. I mean, that’s how a market works, isn’t it?

Looking back at Vodafone, for a long time I’ve felt it needs a good shake-up. It seemed bloated, not focused, and with no clear forward path.

And guess what? That’s exactly what’s happening.

Turnaround…

With its 2022-23 results, CEO Margherita Della Valle said: “Our performance has not been good enough. To consistently deliver, Vodafone must change … We will simplify our organisation, cutting out complexity to regain our competitiveness.”

I bought Aviva shares in the early days of such a turnaround plan. So far, I like what I see with that one. But it can take a few years to tell if this kind of big change really is working.

Should I do the same here, and buy some Vodafone?

Part of the plan involves a deal with Microsoft to do some AI stuff (though I’m wary that AI seems like a bit of a marketing term these days), plus some big cloud offerings.

…or takeover?

Going by some rumours, I might not get a chance. If they’re right, there could be a few parties interested in an attempted buyout.

I don’t pay much attention to that. But it does suggest that enough folk might be looking positively at Vodafone’s low share price.

I do see a lot of risk here. The debt still worries me, and I think a dividend cut might be part of the change. Forecasts do actually show it falling a bit.

But just a small investment, in the hope that Vodafone really can realise its global potential? I might just go for it.

The post The low Vodafone share price and 10% dividend mean I just might buy appeared first on The Motley Fool UK.

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Alan Oscroft has positions in Aviva Plc. The Motley Fool UK has recommended Microsoft and Vodafone Group Public. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.