Income-oriented investors have been desperate for years to find investments that provide a significant, reliable source of income. Interest rates are at multigenerational lows, and the dividend yield on stocks is about half of its long-term average. Most stock prices are also extremely expensive, making the risk-return tradeoff poor by historical standards. Though pickings are generally slim, we continue to scour the market for reasonable values. Vodafone seems to be such a value, and it also offers a high and reliable dividend yield of 6%.
Vodafone is a leading global provider of telecommunications services, with 462 million mobile customers and thirteen million fixed-communications customers. Its cash flow comes 65% from Europe and 35% from Africa, the Middle East, and Asia/Pacific. Though the company is based in England, it derives only a small share of its overall cash flow from the United Kingdom.
Over the past several years, the telecom industry has evolved from fixed-line voice service to mobile voice, to high-speed fixed broadband, to mobile data (which includes video streaming) and converged assets (fixed, mobile, broadband, TV). Vodafone had been solely a wireless phone company, but with customers increasingly seeking bundled services, the company has acquired fixed-line broadband assets. Vodafone also has made major upgrades to its network. This superior network is expected to allow Vodafone to charge premium pricing and benefit from greater smartphone adoption.
The telecomm sector faces gnarly sustainability issues. Vodafone has had its share of challenges, notably around its compliance with the Mubarak regime’s request to shut down service in the midst of the 2011 Arab Spring uprisings. To its credit, following that incident, Vodafone became a leader in industry initiatives to tackle freedom of expression and privacy dilemmas head-on, and the company has become a model of transparency and disclosure in this area. Vodafone has strong environmental programs, including greenhouse gas reduction targets. But the company needs stronger labor and green procurement practices throughout its supply chain.
In sum, Vodafone has a strong position in a vital industry. It has global and local scale, a strong brand, and converged assets (fixed, mobile, and entertainment). With a major network upgrade behind it, margins and cash flow should improve. Its financial condition is better than average. With the stock at a five-year low in both pounds and dollars, its reasonable valuation and high dividend (which the company has increased for 16 consecutive years) make this an attractive total-return stock.
Dividend Yield: 6.0%
52-Week Low–High: $24.47–$34.70
Market Cap: $70 billion