After a prolonged period of contraction, FTSE stock Vodafone (LSE: VOD) is growing again, its dividend yield is more than 6.0%. So the question is should I buy it?
Vodafone is a stock that’s fallen on hard times, but that could all be about to change thanks to price rises, new services and increasing customer numbers.
This is a combination that’s driving a turnaround at the group, and one that isn’t reflected in its share price in my opinion.
Growth strategy
Vodafone was once a giant among the FTSE constituents; however, these days it’s a more modest concern with a market cap of £32.5bn. Having been through a period of contraction, the stage looks set for Vodafone to start growing once more.
In its first-quarter update, published in late July, Vodafone outlined its growth strategy for Europe and Africa, its principal markets. The firm’s goal is to grow through service, simplicity, experience and innovation.
Source: Vodafone investor relations
That strategy seems to be working, as it’s grown in Europe and Africa over the last five quarters.
Growth in Africa, where Vodafone has almost 50m users, outstrips that seen in Europe. However, service revenues in Turkey grew by almost 36% during the first quarter of the financial year 2023, with Egypt growing by 19.5% over the same period.
UK service revenue growth rose by 6.5% in Q1, and the number of UK and European mobile customers in a contract with Vodafone also grew sharply, up by 215,000.
What’s more, unlimited mobile plans are driving higher average revenue per user numbers, meaning that Vodafone is adding new customers and earning more out of them.
Future potential
Vodafone has an eye on the future, and it has amassed 25.5m European broadband customers and almost 22m TV subscribers.
It offers high-speed 5G networks in 318 European towns and cities, and some 159m devices connect to the internet of things via a Vodafone SIM card.
Vodafone also retains an 81% stake in Vantage Towers, one of Europe’s leading cellular infrastructure companies, a sector that has seen M&A activity.
The stock has a current dividend yield of 6.26% — that’s almost twice the current average for the FTSE 100. It has paid dividends since 1991, giving it a 30-year track record of rewarding shareholders.
As with the market cap and share price, the dividend is lower than it once was, but there is no reason that it can’t grow in line with the wider business.
Of course, being consumer-focused, Vodafone is sensitive to variations in household spending, which high rates of inflation and rapidly rising utility bills may temper over the next six months.
However, I think we can assume that most customers will be very reluctant to give up their mobile devices and connectivity.
Vodafone’s recovery potential and dividend yield make it an attractive proposition, and one that will be on my watchlist of possible buys well into the autumn.
The post Here’s a cheap FTSE stock with a 6% dividend yield. Should I buy it? appeared first on The Motley Fool UK.
Why this £5 stock could be set to surge
Are you on the lookout for UK growth stocks? If so, get this FREE no-strings report now while it’s still available.
You’ll discover what we think is a top growth stock for the decade ahead… and the performance of this company really is stunning. In 2019, it returned £150 million to shareholders through buybacks and dividends.
We believe its financial position is about as solid as anything we’ve seen.
Since 2016, annual revenues increased 31%
In March 2020, one of its senior directors LOADED UP on 25,000 shares – a position worth £90,259
Operating cash flow is up 47%. (Even its operating margins are rising every year!)
Quite simply, we believe it’s a fantastic Foolish growth pick. What’s more, it deserves your attention today! So please don’t wait another moment…
Get the full details on this £5 stock now
setButtonColorDefaults(“#5FA85D”, ‘background’, ‘#5FA85D’);
setButtonColorDefaults(“#43A24A”, ‘border-color’, ‘#43A24A’);
setButtonColorDefaults(“#FFFFFF”, ‘color’, ‘#FFFFFF’);
})()
More reading
2 top dividend stocks for retirement
A 6.2% FTSE 100 dividend stock I’d buy to boost my income
I’m using this FTSE 100 stock to help protect my portfolio from inflation
3 recession shares I’d buy in August
If I’d invested £1k in Vodafone shares a year ago, here’s how much I’d have now
Darren Sinden has no position in any of the shares mentioned. The Motley Fool UK has recommended Vodafone. 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.