Perhaps Vodafone Group PLC (LSE:VOD) should have given shareholders the benefit of the doubt earlier.
The British telecoms multinational today declared a halving of its dividend in the year ahead, marking the first dividend reduction of this magnitude since 2019.
Rather than heading for the hills, investors pumped Vodafone’s long-stagnant share price up 3%.
Make no mistake, this is early days- at around 72p a pop, Vodafone shares are currently worth about what they were when Lock, Stock a and Two Smoking Barrels was in the cinemas (1998, to be precise).
But it signals a pragmatic step by new boss Margherita Della Valle to get the ship back on course; a step seemingly acknowledged as necessary by the market.
“While painful, the cut looks a sensible move,” said Russ Mould, investment director at AJ Bell. “It will free up more than €1 billion a year in cash flow and enable Vodafone to either further reduce debt or invest in its core operations to maintain and enhance their competitive position, in what remain fiercely contested markets such as mobile telephony, TV and broadband.”
Speaking of debt, there remains a walloping €33.2 billion of it on Vodafone’s balance sheet; that’s a lot of years worth of €1 billion annual savings.
But with a large-scale refining of its operations underway, “the business will look simpler, and the balance sheet will carry less debt as the company shrinks in an attempt to improve its long-term growth potential”, said Mould.
He added: “From a share price perspective, less debt means less risk and less risk can mean a higher share price, or at least persuade investors to pay a higher multiple to access a company’s earnings and cash flow, all other things being equal.”
Once again, it’s early days, but slightly more optimistic ones at least.