Vodafone (VOD) cuts dividend to rebuild financial headroom

Increased competition and high 5G costs factored into the share price recently hitting a 5 year low.

Article updated: 14 May 2019 11:00am Author: Graham Spooner

  • 40% dividend cut should help to support corporate strategy.
  • Increased competition has weighed on revenue growth.
  • The group may be over the worse so we recommend shares as a ‘buy’ for income seeking investors.

As predicted in the weekend press the dividend has been cut by 40% equating to a yield of around 6%. Vodafone’s full year results reported a pre-tax loss of EUR 2.61 billion; adjusted earnings were in line with expectations with a 3.1% rise.

Increased competition in some markets has put pressure on revenue growth; this coupled with the high auction costs associated with 5G has reduced their financial headroom. Much of this news is already priced into the shares, with the share price hitting a 5 year low yesterday. As a result, there has been a rally in the price in early morning trading by around 2.44%.

The CEO highlights the group being at a “key point of transformation”, citing deepening customer engagement, accelerating digital transformation and simplifying of operations. The dividend cut should help with these goals, helping future growth and reducing debt levels.

Our View on Vodafone - Buy

We maintain a buy recommendation for income seeking investors; taking the view that the group may be over the worse and on the path to rebuild their financial headroom.

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All information given including prices, yields and our opinion is correct at the time of publication. Our opinions on investments can change at any time and for our latest view please go to www.share.com. To understand how our Investment research team arrive at their views please read our Investment Research Policy.

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Graham Spooner

Investment Research Analyst

Graham started out as a fully authorised dealer on the Stock Exchange trading floor and for various banks, before becoming an FCA-approved investment adviser. Now a respected voice in the media, Graham’s share tips and comments on the markets are frequently sought by the national press.