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This time last year I saw Vodafone Group (LSE: VOD) shares as something I wouldn’t touch with a bargepole. Now I’m thinking of buying to provide a second income from my ISA.
A lot can change in a year, and I think a few key things have.
When something happens to make a stock look good enough to buy, shouldn’t we buy big? Warren Buffett, the ace investor and CEO of Berkshire Hathaway, seems to think so. He once said:
Every decade or so, dark clouds will fill the economic skies, and they will briefly rain gold. When downpours of that sort occur, it’s imperative that we rush outdoors carrying washtubs, not teaspoons.
Letter to shareholders, 2016
So should I fill my washtub with Vodafone shares? Sorry, I mean my Stocks and Shares ISA?
I reckon Vodafone has been eroding shareholder value in recent years. And I’d say that’s echoed by the share price.
Share price collapse
Vodafone shares have lost more than 50% of their value in the past five years. And they fell further when the telecoms giant released 2022-23 results.
But there are big changes afoot, and I reckon we might just be at the start of something good.
Old boss Nick Read stepped down in December. But that was after years of Vodafone looking like a jumbled mess of disconnected worldwide operations.
Costs needed to be brought under control. And it was hard to see where the cash to keep paying big dividends could come from. Read did have plans to cut costs, but I think the market generally saw it as too little, too late.
Meet the new boss
New chief executive Margherita Della Valle has made a dramatic entrance with the first set of full-year results under her management.
She said: “Today I am announcing my plans for Vodafone. Our performance has not been good enough. To consistently deliver, Vodafone must change.”
I won’t argue with her there.
The firm now plans 11,000 job cuts in the next three years, as a start on the new turnaround plans.
What about dividends?
Right now though, I’m torn on Vodafone dividends. In past years, I’ve seen them as an inefficient use of cash while debt was soaring.
The firm hasn’t said much about the dividend yet, other than to keep it the same as last year for a 9% yield. But debt fell in the year by almost 20%. It’s still big, mind.
I can see one of two things happening in the next few years. Either Vodafone will cut costs, get its debt down further, and boost earnings enough to cover the dividend. Or the dividend might otherwise have to be cut.
Will I buy?
I’m thinking that £10,000 (or half an ISA allowance) in Vodafone could get me around £900 a year in dividends, at the current yield.
I’ll wait to see how the new plans look like working out. And if I do buy, I’m not sure how much cash I’d invest, as I still see significant risk.
But if I think the dividend could be sustainable now, I might be in.