Royal Mail, dividend not so attractive now

One of the major attractions of buying Royal Mail shares was the prospect of a 6-7% dividend yield thanks to the Government pricing the company to sell. This would have been nice for the private investor if you could have got more than the 227 share limit, £750 worth at IPO, but once the issue was scaled back it became less attractive as a hold. I made the point in a post a few days ago that because of the small 227 share limit it might not be worth holding on to them given the 30-40% rise in price since then. If you want more, at a less attractive dividend yield, you now have to pay for it. Some in the city seem to feel the same way.

Investors who bought Royal Mail shares for the income should sell their stakes, experts say. Before trading began on Friday, the appeal of the shares had largely been in the likely dividend stream, which seemed attractive at the price. But with the shares having soared in value, the income now looks less appealing by comparison with the instant capital gain available if you sell.

With the shares priced at 475p at the end of trading yesterday the yield works out at about 4.3pc, net of basic-rate tax, which is deducted at source. Before trading began on Friday the yield stood at 6.1pc, representing 20p a share. The yield is now on a par with income stalwarts such as Tesco or Vodafone – which, unlike Royal Mail, do not face a union battle and massive restructuring.  

http://www.telegraph.co.uk/finance/personalfinance/investing/10378410/Royal-Mail-sell-now-investors-urged-as-yield-falls-from-6.1pc-to-4.3pc.html

So, the euphoria around the Royal Mail IPO is beginning to wear off and as the price rises it is becoming less attractive as the market will inevitably focus on the issues facing the company going forward. There is also the question of whether a 4% dividend yield is attractive now when compared with other dividend payers, chances are that the risks are much higher going forward with Royal Mail. For the institutions however, a 3-4% dividend yield will still be attractive so I would expect them to continue to hoover up Royal Mail shares as the small investor sells off  their 227 shares. As an exercise in widening share ownership, if this was the Government's intention, it has largely failed. Most of the shares will end up, eventually, with institutions.

Vodafone sells Verizon stake

Well, Vodafone finally did the deal and sold its Verizon stake (See from March of this year - Is Vodafone a Screaming Buy?). There are times when the market undervalues a company in a vary obvious way and Vodafone's Verizon stake was one of them.

At completion, Vodafone shareholders are expected to receive all the Verizon shares and $23.9bn (£15.42bn) of cash and all the shares, equivalent to 112p per share and representing 71% of the net proceeds.

Before the announcement analysts at Jefferies were placing a value of 151p per share on the wireless stake post the capital gains tax.

Following on from the above the Board intends to increase the total 2014 financial year dividend per share by 8% to 11p, and intends to grow it annually thereafter.

http://www.digitallook.com/news/21131814/Vodafone_approves_sale_of_key_US_unit_dividend_to_rise_11_per_cent.html?username=,&ac=,

http://www.digitallook.com/news/rns/21131721-10097/VOD-VODAFONE_TO_REALISE_130BN_FOR_45_INTEREST_IN_VZW_html?ac=,&username=,

The company will now have to look for growth in other areas, but with billions to invest they ought to be able to find a few new ventures worth. There must be quite a few smaller companies out there that might be on Vodafone's shopping list.

The Week Ahead 4 - 20th to 24th May 2013

Markets continue to go up, dips keep on being bought.

A selection of companies reporting this week.

Tuesday, 21st May

Interim - Greencore Group updates the market and has been recovering well after falling heavily back in February due to the horsemeat scandal. That blip in the share price when it fell to around 80p has been more than made up as it now stands at around 118p.

Finals -  Telecom Plus and Vodafone.

We could see two contrasting reports from these two telecoms companies. Telecom Plus just seems to keep on going up and up on the back of good results, it has been a good few years since it has had any blip in performance. As a FTSE250 growth company it will be a surprise if they come up with anything unexpected.

On the other hand Vodafone might be about to make an announcement about the size of likely future dividends if press speculation is anything to go by. There is also the little matter of their Verizon Wireless holding which continues to help keep the price up in recent months on speculation of a buy out, but remains an ace card for the company if ever a deal is done.

Business elsewhere is not so hot.

Meanwhile, Vodafone is expected to reveal annual results that show the impact of the continuing Eurozone crisis and European regulation on its core business. 

Vodafone will report a drop in sales in the wake of heightened competition, analysts predict. 

They have also projected that the company will show its growing reliance on Verizon Wireless for profits. Last week, Vodafone announced that will receive more than £2.0bn from its stake in the US join venture with Verizon. 

Verizon Wireless, which has been at the centre of takeover rumours by Verizon for months, is paying a total of $7.0bn to shareholders at the end of June. 

Vodafone, which owns 45% in VZW, will receive $3.2bn, while Verizon will pocket the rest. 

http://www.digitallook.com/news/20907957/Tuesday_preview_M_S_and_Vodafone_report.html?username=&ac=

Final - Marks and Spencer. Not expected to be that good which given the recent run up in the share price since mid March makes you wonder what is going on. The easy answer is that we are in a bull market which takes everything up with it, but the results this week could see a sell off if profits are down as many expect. Better to have ridden the wave up with this one perhaps.

Analysts forecast M&S will report its lowest annual profit in four years, as the retailer’s struggling general merchandise division continues to offset a rise in food sales. 

The firm’s clothing business has posted seven consecutive quarters of underlying sales declines, prompting an overhaul of the division to draw in more customers. 

M&S is anticipated to post a pre-tax profit of £640 to £670m with a consensus of £658m, according to a company poll reported by Reuters. The group made a £706m profit the year earlier. 

http://www.digitallook.com/news/20907957/Tuesday_preview_M_S_and_Vodafone_report.html?username=&ac=

Thursday, 23rd May

Final - Qinetiq. Will be interesting to see what if anything they report on cutbacks or delayed contracts with the US as budget spending goes on hold. Share price has dipped and struggled recently on fears that spending on defense will be cut going forward.

Is Vodafone a screaming buy?

At least is it a screaming buy for the long term buy and hold investor? There is a case to be made for saying that this is one company which has an ace up its sleeve which could see the share price go a lot higher if ever the value of its 45% share of Verizon Wireless is unleashed.

This is a company that back in the tech boom days, when it was seen as a more of a growth story, did see its share price get to around the 400p level, but that was back in 2000. Since then it hasn't really got close to that price level and as it is now seen as more of a mature company, as such it's not unreasonable to expect to see its price based on a more sensible valuation of its fundamentals. However, Vodafone has one big advantage which in terms of its potential share price appears to be totally overlooked and that is the share of Verizon Wireless that it owes.

The Vodafone share price has recovered recently partly on the back of some deal or takeover being on the cards with Verizon for Vodafone's stake in the company. It is clear that the two companies find it difficult to live in harmony with each other and that both sides might just be edging towards some kind of mega deal that would, or at least should have a dramatic effect on Vodafone's share price.

The key fact seems to be this.  Vodafone is valued at a market cap of around £92 billion, but some estimates put its 45% share of Verizon at more than that. In other words, Vodafone's current valuation seems to totally discount the Verizon share, which is quite remarkable when you think about it. This is effectively what US hedge fund manager David Einhorn said back in January when he increased his stake in Vodafone.

http://www.businessinsider.com/greenlights-david-einhorn-bullish-on-vodafone-2013-1

In the meantime Vodafone will no doubt continue to pick up a sizeable yearly dividend from Verizon until the two parties decide what they are going to do. Until that happens its clear that Vodafone is holding a strong hand with its 45% stake, a potential £90+ billion of value which the market seems to be ignoring.

Update 03/04/13;

Aviva disappoints, another big dividend yield bites the dust

Aviva reported to the market this morning numbers that probably came as a bit of a shock.

Shares in Aviva crashed 15pc in early trading on Thursday after the insurer revealed a 44pc cut in its final dividend from 16p to 9p, reducing its total dividend from 26p last year to 19p for 2102 – a drop of 27pc.

Aviva said it had rebased the dividend to give certainty to shareholders and reduce debt, putting the insurer in "a sound position for the future".

Pension funds, fund managers and small investors, who have held the company's shares because of its 7pc dividend yield, were expected to offload the shares on Thursday.

RSA Insurance upset investors last month by lowering its dividend by 33pc. The surprise cut resulted in a 14pc drop in the insurer’s share price in a single day.  

http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/insurance/9914400/Aviva-shares-tumble-as-slashes-dividend.html

Like RSA Insurance, Aviva had been sitting on the attraction for investors of a big dividend yield for some time, but there was always talk of underlying problems, a "value trap" in the making and thus today's reduction in the dividend shouldn't really come as a total surprise. Anyone who shifted their funds out of RSA into Aviva a few weeks ago will have been hit hard by this double whammy.

Another Vodafone downgrade comes in

Just when Vodafone investors thought their share price might be in the process of making a recovery, market sentiment moves towards the negative side again. First, the news that Vodafone might bid for Kabel Deutschland didn't seem to please the market and now a broker downgrade, a fairly substantial one comes in.

...broker downgraded issued by Sanford C. Bernstein & Co.

Analysts at the brokerage moved Vodafone's stock from Market Perform down to Underperform - while also issuing a swinging cut to their target share price.

VOD's target now sits at 135, down from 170.

Vodafone’s European assets, which account for about 40 percent of the group operating profit, may shrink by 23 percent in the next three years, Bernstein said.

http://www.economy-news.co.uk/shares/share-price-drivers/2767-vodafone-group-plc-shares-downgraded-4543545

Meanwhile, Vodafone continues to buy up its own shares as part of its buyback plan. One assumes they don't think it will go to 135p, otherwise it might be best to wait to get a better price. On the other hand, companies probably don't try to time the market in the same way traders or investors might do, Vodafone no doubt feels that long term there will be value in buying at the current levels between 160 and 170p.

Vodafone - "damned if they do, damned if they don't".

http://www.economy-news.co.uk/shares/share-price-drivers/2730-vodafone-share-report-and-strategic-vision-questions-443545

Vodafone - a look at the weekly chart

Last week Vodafone reported to the market what looked like a downbeat statement which had little or no effect on the share price. If anything, the share price is simply in line with current market sentiment with a bounce in the trend from the falls towards the end of last year. Not sure there is any conviction in this from the fundamental side, there still seems to be quite a lot of negative news. There is also the news that Invesco's Neil Woodford sold his holdings in the company.

Mitchell Fraser-Jones, a director of Invesco Perpetual, confirmed: “In terms of trading activity, the fund has now completed the sale of its holding in Vodafone.

“The company has reduced its forecasts for revenue growth on the back of ongoing weakness in its core southern European markets and the cash flow cover of the dividend has fallen to what we view as uncomfortably low levels.

“The company announced a share buy-back rather than the hoped for special dividend with its dividend from Verizon Wireless, while we also have reservations about the company’s ability to maintain its margin on data revenues.”

http://blogs.telegraph.co.uk/finance/ianmcowie/100022718/investment-guru-neil-woodford-sells-vodafone-despite-good-results/

The big thing that Vodafone has going for it right now is its share of Verizon Wireless, hedge fund manager David Einhorn recently went bullish on the company because he believes that market is ignoring the value this holding has.

He works for Greenlight Capital and is widely followed on Wall Street.

So when he said in a newsletter to investors that the market undervalues Vodafone’s ‘clearly quite valuable’ 45 per cent stake in Verizon Wireless, and that it could soon sell its shareholding, buyers chased shares of the world’s second biggest telecoms company up to 168.65p before they closed 5.2p better at 168.675p on turnover of £233million.

Einhorn added further spice by suggesting that ‘given the huge valuation disparity between what the market thinks Verizon Wireless is worth to Verizon – at least a couple of hundred billion dollars – and what it ascribes to Vodafone – about zero – combined with Verizon’s increasing dependence on Verizon Wireless, it wouldn’t be a surprise if Verizon decided to buy all of Vodafone to gain full ownership of Verizon Wireless’.

http://www.thisismoney.co.uk/money/markets/article-2267840/MARKET-REPORT-Einhorn-sparks-Vodafone-buzz.html

Charts:

Will Vodafone disappoint?

While the Vodafone share price has recovered a little ground in recent weeks, to some degree on the back of the euphoric start to the year in the FTSE, its results to be announced tomorrow have been awaited with some question marks hanging over what is likely to be reported. Could the downward trend continue if Vodafone comes in lower than expected? It looks like the market is ready to be disappointed.

Vodafone Group is expected to post 'growth deterioration' in its financial results Thursday.

Last month Deutsche bank lowered its recommendation from ‘buy’ to ‘hold’ citing concerns about the telecom company’s worsening cash returns.

"We forecast growth deterioration through calendar 2013 with the outlook for financial FY14 set to confirm declining free cash flow (FCF), no further dividend-per-share (DPS) growth and a scaled down buyback to avoid increased leverage."

Deutsche Bank said it anticipates organic service revenues to falter further this year, with a return to positive growth unlikely until 2014.

It also reduced its target price for the shares from 225p to 175p.

http://www.digitallook.com/news/20674165/Thursday_preview_Vodafone_Group_to_report_growth_deterioation.html?username=&ac=

"Growth deterioration" doesn't sound good, but a lot will depend on how much deterioration and it does have its Verizon Wireless investment to help it out, although it appears to be talk around a possible Verizon buyout of Vodafone that seemed to be helping the share price recently. Would Verizon seriously consider a bid for Vodafone? Can Verizon afford it?

A better than expected report tomorrow could see Vodafone continue to recover from its lows in the 150's, worse than expected and we may see 155 tested again over the next few weeks. It will be interesting to see what the charts look like by the end of tomorrow.

Vodafone chart before recent recovery below.

http://sevenpillarstrading.blogspot.co.uk/2012/12/no-christmas-love-for-vodafone.html

Some popular posts from 2012

Here are some of the more popular posts, in terms of hits, from the last year (or 6 months or so that the blog has been going).

It would appear that we all like something that is free, even better if it is helpful as well. There are quite a few good free online trading, investment magazines and when I find something new I add it to the list.

Something for free - online trading/investment magazines

What time frame are you trading/investing in

Should you follow the news?

Vodafone

Dividend Payers

Technical Analysis

US Fiscal Cliff

Should Vodafone cut its dividend?

One of the few things that Vodafone has going for it at the moment for investors is its dividend. The current dividend yield is between 6-7%, helped by the potential of growing payments to the company from its investment in Verizon Wireless. So, it will perhaps come as a surprise, especially to Vodafone investors, that at least one view from the city seems to be suggesting that the company should cut its dividend. Here's what Nomura had to say in a release today.

"Paying an inflated ordinary dividend has been discredited as a way to reward shareholders, it restricts strategic flexibility and it leaves Vodafone dependent on Verizon Wireless cash flows which compromises its ability to negotiate with Verizon. A review of cash return policy is overdue, we believe."

http://www.digitallook.com/cgi-bin/dlmedia/security.cgi?csi=10097&action=news&story_id=20580488

So, reading between the lines are they saying cut the dividend? Invest the money elsewhere in the business? Nomura does seem to think that the licence renewal for a company like Vodafone could act as a drag on the company and its share price for years to come.

The broker estimates Vodafone's spectrum bill to be at least £1.5bn annually for 2013-2016 (year-end March) and £20bn over 10 years. For the current financial year (ending March 2013), spectrum costs will be around £3bn, reducing controlled cash flow to £2.2bn, well below the dividend cost (£4.9bn).

Is the Vodafone dividend safe? Probably for now as I suspect that any announcement of a dividend cut on top of all the other perceived bad Vodafone news would see the share price going lower given the poor sentiment that surrounds the company at the moment. However, the fact that one city voice is suggesting, in their words, that "paying an inflated ordinary dividend has been discredited as a way to reward shareholders", suggests that Vodafone has a lot to do to improve sentiment towards it going into 2013.

No Christmas love for Vodafone

Despite the FTSE continuing to show a desire to rise as we go into the Christmas period, one company that just happens to be one of the biggest market caps in the index,Vodafone, just cannot seem to do anything to find any market love.

Vodafone's share price has been in a relentless fall, a look at any chart on more or less any time frame shows a series of red with just occasional hints of blue (or green in the case of the charts below), the latest fall this week coming because the market feels that Vodafone overpaid for its Dutch 4G airwave licence. With other countries, including the UK, getting ready to sell their licences there is a feeling that cash strapped Governments will raise the bar as high as they can get away with and telecoms companies like Vodafone will get taken for a ride.

Whatever happens, this is just another in a long line of bad news flow, at least as interpreted by the market, to further hit the share price. However, the warning signs were there in the charts, especially after the share price was  up to over 190p a few months ago, a potential top could be seen and since then it's been one of the most slowly grinding relentless sell offs in the FTSE index. Both the Weekly and Monthly chart look pretty ugly. Even worse, the fall looks in its early stages on the Monthly chart. If there is a saving grace for the moment it is that support is at the current 156-158 level and the price has just touched the 200 dma on the Weekly chart.

This is still a falling knife and even though Vodafone is in the market to buy its own shares right now with the Verizon dividend (Vodafone begins buyback), it isn't doing much thus far to prop up the ailing share price. Still, I suppose they might consider they are buying cheap. Charts suggest it might just get cheaper.

Charts:

Vodafone begins share buyback

In its latest report to the market Vodafone announced that it would use this year's Verizon dividend to buy back its own shares. It looks like this may well have begun.

The instruction to Barclays will run for the period from 10 December 2012 and end no later than 20 February 2013 (the "Period"), for an amount of no greater than £550 million, as is determined in accordance with the agreement between Vodafone and Barclays.

The purchase of Shares in the Period by Vodafone following the agreement with Barclays and the £1.5 billion share buyback programme will be executed at all times only in accordance with Vodafone's authority to make market purchases of Shares.

http://www.4-traders.com/VODAFONE-GROUP-PLC-4006195/news/Vodafone-Group-plc-Transaction-in-Own-Shares-15583873/

Vodafone Group PLC (VOD.LN) said Tuesday that it has purchased 7.5 million of its ordinary shares on the London Stock Exchange from Barclays Capital Securities Ltd. at 161.4013 pence per share, which will be held in treasury.

http://www.4-traders.com/VODAFONE-GROUP-PLC-4006195/news/Vodafone-Group-plc-Vodafone-Group-Buys-Back-7-5-Million-Shares-161-4013P-15586686/

Given the share price has lagged recently the size of this buyback may help support the price, but whether the low (Vodafone - where's the bottom?) is in for the company remains to be seen.

Video market round up for week ending 23rd November

A week ending round up of the markets from Steve Briggs YouTube channel.

A review of the markets for the last trading week, including FTSE100, S&P, Dow, Dax and CAC. This week also includes a look at UK FTSE100 shares, SABMiller, Vodafone and Barclays.

Links:

Steve's YouTube site http://www.youtube.com/user/sjb5555.

Video market round up for week ending 16th November

A week ending round up of the markets from Steve Briggs YouTube channel.

A review of the markets for the last trading week, including FTSE100, S&P, Dow. This week also includes a look at UK FTSE100 shares, Royal and Sun Alliance, Vodafone, SSE and ITV.

Links:

Steve's YouTube site http://www.youtube.com/user/sjb5555.

Vodafone, where's the bottom?

So, Vodafone had another bad day on the markets today. It has just about replaced Tesco as the unloved big behemoth FTSE100 company of the moment by the city. The share price has been consistently falling since hitting a high of around 192p back in August, closing today at a little over 162p.

This morning Vodafone gave its half year report and typical of a company that didn't need to surprise anyone with something that would hit the share price further, the company delivered a nasty surprise.

The Group incurred a total impairment charge of £5.9 billion in relation to the carrying value of goodwill of its operations in Spain and Italy as a result of challenging market conditions and adverse movements in discount rates.

There's that word again "challenging".

Not even the news that a Verizon dividend would actually be payable at the end of the year was enough to save further falls.

Verizon Wireless

VZW, our US associate, achieved organic service revenue growth of 8.0%* in H1 and 7.8%* in Q2. Our share of profits from VZW was £3.2 billion, up 27.4%* year-on-year. VZW's net debt declined from US$6.4 billion at 31 March 2012 to US$1.9 billion at 30 September 2012, despite spending US$3.7 billion (net) on the acquisition of spectrum in H1.

On 12 November 2012 VZW declared a dividend of US$8.5 billion (£5.3 billion), of which Vodafone's share is US$3.8 billion (£2.4 billion). The dividend is due by the end of the 2012 calendar year. The Group intends to commence a £1.5 billion share buyback programme after receipt of the dividend.

http://www.digitallook.com/news/rns/20493394-10097/VOD-Half_Yearly_Report_html

Vodafone and the Verizon dividend mystery

The Vodafone share price has been in a bit of a slump recently, nothing dramatic but a few fears have crept in as to whether this FTSE100 behemoth can maintain its current growth, certain negatives coming out of Europe suggesting that it might be heading for tougher times.  Vodafone offers a pretty good dividend yield currently around 5.5% but could rise to 7.5% next year.  This does not include the special dividends that shareholders have been getting courtesy of its 45% stake in US based Verizon Communications. However, in the last week or so the share price has fallen in part because of a fear that Vodafone will not get a dividend from Verizon this year.  It appears there is nothing substantial or factual to support this, just one of those stock market rumours that tend to emerge and effect a share price from time to time.

Big ex-dividend pay day on the FTSE100 today.

Today is a day when some of the big names of the FTSE100 will be going ex-dividend and therefore it is possible that there will be some adjustment down in their share price.  It is always worth watching out for such moves because often just prior to a dividend payout the share price of a company may well have been rising, a case of good news already being priced in.  The dividend gets paid and the shares fall, sometimes not just by the amount equivalent to the paid out dividend.  This can lead to a buying opportunity.

Once the dust settles on such down moves it will often give a trader the chance to get back in as the price will often re-adjust back up, which is exactly what happened to Vodafone recently after their dividend and special dividend payment. For longer term investors, it also gives a chance to buy more at a lower price, assuming you like the fundamentals and nothing has changed as to why you hold the stock.

UK Dividends on the rise.

UK dividends reached a record high of £22.6 billion in the second quarter of this year beating the previous record of £22 billion for Q2, 2007.  The total payout for the first half of 2012 has been £41.4 billion, a rise of 21% over a year ago.

The amount paid in dividends has been supported by a number of special one off dividends from the likes of insurer Old Mutual and GlaxoSmithKline.  Vodafone and Severn Trent have also paid special dividends recently.

Private investors desert the market, a good contrarian sign?

Capita Registrars reported yesterday that private investors in the UK dumped £1 billion of shares between March and May this year, the largest amount of net selling in five years and bigger than the summer of crisis hit in 2008.  Even worse for the investment industry this happened at a time when buying tends to go up as investors pile money into their annual tax free ISA allowance.

Charles Cryer, chief executive of Capita Registrars, says at the beginning of the year, investors were optimistic that the economy had turned a corner. ‘This encouraged private shareholders very cautiously to add to their holdings,’ he says. 

‘It seems their caution was justified as the market rally faded, and the economy sank back into recession. The eurozone crisis has now reached another critical phase and hopes for the global economy have been dampened. Private investors have reacted by selling shares in large volumes,’ he says.

On the plus side, dividends have been up, 22% in the first quarter of the year compared to 2011, Vodafone being one of the big payers.

So, optimism seems to be fading on the back of more doom and gloom coming out of Europe and a mix of not so good economic figures worldwide.  In the meantime markets just might have priced this in for now as the short term moving averages in my previous post show more bullish tendencies.  The market is expecting more reflationary measures to be taken in the US, UK and Europe.  It may not happen quickly, but it will probably happen and when it does the market will like it.

Sources

http://www.moneyobserver.com

http://www.ftadviser.com/2012/07/02/investments