Wednesday, 30 May 2012

Vodafone: A Good Investment?

In a recent blog post surveying the attractiveness of individual FTSE 100 stocks Vodafone came 2nd with an expected annual return of 10.8%. The figure was based on the average 3 year dividend which came in at 5.1%. The current dividend yield is 5.5%, with a 7.5% analyst forecast for 2013. The dividend for 2014 is estimated at 13.79 compared to 9.52 for this year. That gives an almost 45% increase in the dividend over the next two years. Being conservative I put a 6% annual growth rate on the dividend in the model (which is 75% lower than current analyst estimates).

So on paper the figures are pretty impressive. Vodafone is a mobile telecoms giant with over 150m customers worldwide and good exposure to a numbers of developing markets, most notably India and Turkey.   

Is it too good to be true?

Scratching under the surface uncovers a few less desirable features.

Insider Selling

Last week their CFO sold £1.7m of his Vodafone stock which was a significant stake reducing his total holdings by almost 40%. In February their Regional CEO sold £900k worth of shares reducing his holding by almost 30%. If you go back to August 2011 over £5m worth of stock was sold by the directors. Very little insider buying has happened over this period and none of the amounts have been all that significant. Of course there could be circumstances when a director needs to  sell some stock for some personal reason but the scale of the deals and the fact that a large number of the insiders are selling at the same time seriously concerns me especially as the stock looks so attractive on paper.  

On the 17th May Vodafone broke it's 100 day support line suggesting a downtrend is imminent.

The weak price action coupled with the serious insider selling would certainly discourage me from investing in this stock. The high analyst estimates also seem a bit too optimistic for me. Sure, Vodafone has exposure to growing emerging markets but this is still a very competitive sector . The dividend is a clear appeal to many investors and is currently covered well but the cover going forward, especially with the generous dividend increases, looks a bit tight. If the directors aren't confident enough in their own business to keep holding the stock then neither am I.


  1. So although the CFO sold approx 40 pc of his holdings the fact that he's still holding 60pc is seen as negative?!
    Same with the regional CEO who's still holding 70pc of his shares!!
    Maybe they are just seeing investment opportunities elsewhere i.e. property - whilst we are in this downturn and are just cashing in their shares to take advantage of that!
    There's always two sides to the coin!
    As long the dividend is maintained, Vod carries on reducing their debt and Verizon is doing well I have no intention whatsoever of selling my holdings!

  2. The dividend is great. If they can maintain it then VOD.L is a bargain at these prices.
    I guess the directors can't sell all their holdings without the market getting suspicious there is something wrong. Maybe they are trying to offload them on the quiet.

  3. Not sure I'd want to buy something the insiders are selling

  4. I don't buy into all that technical analysis nonsense. I agree with the first poster the directors still hold most their shares, if there was trouble they would be completely out.
    For me vodafone is a good investment. I say BUY, BUY, BUY!