As the final month of the year rapidly approaches, I have been thinking not just about what may come in the future but also what is here right now. I reckon some UK shares look cheap relative to their long-term prospects and indeed may be good prospects to buy for my SIPP.
Here is one such share I have been eyeing up.
Household name
The share in question is Vodafone (LSE: VOD).
I think Vodafone needs little introduction for most people. The brand is ubiquitous and the company enjoys a strong position in many markets across continental Europe and Africa, as well as the UK.
Indeed, that is one of the attractions for me. With hundreds of millions of customers, Vodafone is already very well-established. That helps set it up for ongoing success, in my view.
I think many telecom customers basically stick with what they know, as long as the company does not push its prices up too much.
Valuation questions
But why is Vodafone selling at its current price?
After all, the share price is in pennies and the dividend yield is 11%. For a FTSE 100 share, that seems unusually high.
Vodafone has certainly lost some friends in the City over the years. In 2019 it cut its dividend and has not raised it since.
Part of the issue for the telecom firm is its debt level. It has cut that by a fifth over the past year, but it remains in the tens of billions of euros.
But that is not the only concern. The company has been getting rid of various businesses over the past few years. While that can help raise cash in the short term, it could make it harder for Vodafone to grow revenues over the long term.
Why I’d buy Vodafone shares
Still, despite the prospect of declining revenues, I would happily buy Vodafone shares for my SIPP in December if I had spare cash to invest.
Why?
To start with, I reckon the company’s brand and massive customer base give it a sizeable competitive advantage.
I also like the industry. I expect demand for mobile, data, and mobile money to grow in coming years. As a leading player, that ought to benefit Vodafone.
But investing is not just about finding a promising business. Price also matters.
Here I see an opportunity for my SIPP.
Created at TradingView
Over the past five years, the Vodafone share price has more than halved. At the moment, the shares sell for pennies each.
Yet I think the company’s best days could still be ahead of it. It is an established player in an industry with massive potential but high barriers to entry.
I already own Vodafone and benefit from its dividend. At the moment, the shares offer a dividend yield of 11%. If I had spare cash to invest in December, I would be happy to add more of the shares to my SIPP.
The post I’m eyeing this passive income machine for my SIPP in December! appeared first on The Motley Fool UK.
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C Ruane has positions in Vodafone Group Public. The Motley Fool UK has recommended Vodafone Group Public. 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.
