Slight surprise that no comments on price collapse here?



Hi JW,

Frankly, I’m as uncertain about this as many others appear to be. I’m also not primarily a fundamentalist. From browsing around, it appears that various financial sites also employ quite different methods of calculation. I’ve recently seen VOD’s divi cover stated at well under 1, slightly under 1 & slightly over.

But my point remains: even if it was covered by FCF alone, I think some divi-cut fairly soon, heralding a much faster reduction of debt, may go down better with markets than maintaining their current high leverage. - GL.


Hi All,

Well the dividend isn’t the only thing that VOD are going to need to be spending their money on. They have committed about 1.4Bn euros to the Vodafone Idea rights issue according to the article I posted previously. And they will also have to stump up for 5G spectrum costs in various other countries as they come up, that cost them about 430M euros for UK 5G spectrum in 2018 and spectrum auctions in other countries eg Germany are just getting started.

Mobile telecoms is a capital intensive business, not to mention highly competitive.




JW - I think the confusion in your question highlights the weakness of earnings cover as a measure of dividend sustainability. EPS cover <1 does NOT necessarily mean borrowing money to pay the divi, but FCF cover <1 DOES… where FCF is properly calculated. It has long been VOD’s preferred metric, but it is interesting that more high-profile companies are going that way (eg. GSK) and I expect this trend to continue.

That said, it doesn’t mean VOD’s dividend is NOT too high… it is, and has been for years (decades, arguably). It has been covered by FCF, but only in the past couple of years, and it is not the point that they can say they are not borrowing the pay the divi. They are borrowing to meet a variety of capital requirements (including the divi) in what is, and will remain, a highly capital intensive business - as Pref wisely points out. Much of this spending (and borrowing) is indeed investment for growth which I fully expect to earn good returns into the long term… but just at the moment, I don’t think the market is too focused on long term investment vs short term SP weakeness and strains on a monolithic dividend which is close to gaining “Listed” status.

Will they cut it? No, don’t think so, for the moment anyway… and don’t forget, Read may have inherited the dividend as “new” CEO, but as CFO for years previously it is definitely HIS dividend as much as anyone else’s.

Should they cut it? Probably… and contrary to what some people think, I suspect doing so would be a massive BULL signal. Commentators, including too many analysts, have become obsessed with the divi and the sustainability thereof… cutting it (in half?) would force them to look at and talk about other things, including, it is to be hoped, the fact that VOD is just too cheap on a number of measures, big divi, cut divi or no divi at all…


Hi Bill,

I tend to agree with you regarding the “legendary” status of the VOD dividend, must be up there pretty close to the likes of Shell and BP in terms of people’s confidence that it will never be cut. I suspect that it’s likely they will have been lobbied by big fund holders and pension scheme managers NOT to cut - as happened with BP during their deepwater horizon crisis. Certainly I feel sure that Mr Read won’t be keen to earn the title of the man to cut the dividend. If they did cut it’s pretty clear it would be good for the finances, but maybe not the SP - in the short term anyway.

My personal view based on reading around this topic is that the whole 5G issue must be a big risk area for VOD (and indeed all of the big mobile providers). Massive spectrum costs plus equipment, installation and testing costs AND the problems associated with new players throwing their hat into the ring.

The effect of new players has been hugely negative for customer levels and profits wherever this has happened eg India, Italy etc. A typical outcome has been a price war and then often some strategic merger resulting in a reduction in the number of players. But all players suffering to some extent in the process.

Interesting times !.




Yes I agree @NewBill1703.
The ‘usual’ way of calculating divi cover is simple… and certainly doesn’t tell the whole story… but I wouldn’t write it off as something to consider either.
The free cash flow calc probably is taking more into account and is simply another ratio for investors to use to form a view on the financial status of a company.
You could also throw in whether the debt to capital ratio is < 0.5 say…

My issue is that the only examples of companies I’m aware of that don’t use the ‘usual’ divi calc… are those where it would be embarrassingly low… VOD is one example of this.
It is the company’s reason for altering the default/‘usual’ divi calc (and not displaying both I note)… rather than saying one is better than 'tother… that I call into question.


Obviously the ‘covered’ dividend comment has raised a few eyebrows. Yes, I accept that traditionally most analysts have looked at EPS but I’ve always thought it only ever told part of the story and frequently could be very deceptive. I’ve always looked at the cashflow statements at least as much as the P&L and Balance Sheet - often the P&L statement can be the least useful of the 3.

In a small start-up, rapidly growing business where they are ploughing everything back into growing the business, yeah I want as decent a balance sheet as practical and a healthy P&L but, in such a business there’s a very good argument for not having any dividend at all.

FCF vs dividends in a mature business where the ‘product’ is becoming almost a commodity becomes much more important. Let’s face it, dividends are paid in cash so cash coming in to pay them is pretty useful. Writing up or down the value of assets on the balance sheet can generate huge P&L swings when nothing much has changed in the day to day business, but yes, FCF can be played with simply by delaying capital investment which isn’t always a good thing.

I merely suggested that, according to the numbers they reported (or the guidance) the free cash flow did cover the current level of dividends - whether is still would if(when?) they need to invest heavily for 5G is a different matter… the again all the providers need to invest heavily in 5G and the money has to come from somewhere so unless the whole industry can increase it’s income (prices? hard but who knows?) the 5G roll out could be pretty slow.

FWLIW I still can’t get 4G in my house. Passable 3G from O2, temperamental 3G from VOD (it’s usually OK at the front of the house but in and out at the back) with EE being non-existent, no signal whatsoever. I don’t know much about Three (independent network or piggy back of one of the others?) but it’s never ever worked so I haven’t tried recently.

I do believe the dividend is critical to the share price, mainly because of the massive presence of the income funds - if the divs goes or is drastically reduced that could provoke a tsunami of selling but, if the guidance is realistic, an accurate reflection of free cash flow having taken into account necessary investment, then the numbers suggest the dividend is sustainable.

ITDYA, sitting tight for the moment but very much wondering whether investment isn’t just a euphuism for ‘spend’ here - there’s no real return on the investment, much more money you have to spend just to keep up.


Yes @In_the_dark_yet_again… my only point was that I’ve noticed Media (share magazines, online blogs etc) reporting on divi cover… some even comparing it to other companies… and a) wrongly comparing apples to oranges and b) not questioning why the usual ‘Dividend Coverage Ratio’ conveniently is not mentioned.

There are several different ratios that inform something of the safety of a dividend esp. if looked at over time. Here’s four but there are others:

  • Dividend Coverage = Total Dividends Paid / Net Income
  • Cash Dividend Coverage = (Cash Flow from Operations – Capital Expenditures – Preferred Dividend Paid) / Common Stock Dividends
  • FCF Dividend Coverage = Free Cash Flow / Common Stock Dividends
  • CFO Dividend Coverage = Cash Flow From Operations (CFO) / Total Dividends Paid

Looking at all of these would be a good start… rather than picking one that looks good at the moment.

I note that the last Results said:
"The Board will consider growing the dividend per share over the long-term, once the Group’s financial leverage has reduced towards the lower end of the revised target range of
2.5x-3.0x net debt / EBITDA. "

… so there’s another ratio worth keeping an eye on.


“The Board will consider growing the dividend per share”… at the moment just holding it is the issue!

Debt down to 2.5-3.0x earnings before interest and tax (s0d depreciation - how much is last year’s kit really worth?; mind you I still have 2 old PCs downstairs running XP and both quite happy doing it) is a good target but if(when) interest rates go up (which they will, I just have no clue when), with the debt they already have, that could take a while!

I still think, in a mature business, cash is king.



ITDYA - we see that argument for VOD, as we have done for years. But I think you have to conclude that, if the VOD register really was propped up by a “massive” income fund presence, clinging on for the (supposedly) precarious divi, then the current (historic) yield would NOT now be hitting a full 9.5%… or anything like it. It suggests strongly that then income funds, or at least a sizeable consensus thereof, have long since departed, and their confidence in the divi with them.

A 50% divi cut would leave the revised yield at 4.75% - still a bit above the UK market average (which itself is unusually high right now, at the very top end of a 30 year range). And not so far from the circa 5% VOD used to happily trade it… with the kicker that a slashed 4.75% yield might well grow quite a bit faster than it ever did before.

So, no, I don’t buy it… not sure what the immediate, Day 1 reaction would be (possibly depends on what else emerges to finally force a change of heart?), but I see a significant cut in the divi as much more the signal for the income funds to start BUYING in meaningful size, rather than selling. Maybe we’ll get to find out, sooner than later?

FWIW I note a broker has come out today forecasting an 11c divi, which is broadly a halfway-house 25% cut. Still yielding over 7%… I would guess a more neutral reaction to that, with a still-chunky yield balanced by those concerned it hasn’t gone far enough to make a meaningful contribution to a (supposedly) stretched balance sheet.

It’s a fair question, ITDYA… possibly, THE question. Only time could tell on that one… But I do know, at the moment (and TBH, most of the time) the market is much better at measuring the spending in the short term than the true investment for longer-term, and rewarding or punishing shares accordingly.

On a risk/reward basis, still VERY positively skewed for me… irrespective of whither the divi from here!


Hi All,

Well we’ve just had a trading update and the preliminary results arent due till mid May so I dont see some obvious event to hang a dividend change announcement on. I suppose they could just do it out of the blue, but normally such things get announced with some other regular reporting event. So personally I think its likely that nothing much will happen yet, as the next dividend isnt due to go XD till June which is ages away.

The next significant event on the horizon is surely the Vodafone Idea (India) results due in February sometime. If they are bad (and given the rights issue are they going to be good ?) then this may put further pressure on the share price in the short term.

That said these shares are SO cheap now that buying some is a very tempting prospect. Not going to do it myself though. Got my fingers singed from buying here last time and averaging down with confidence several times. Thats enough pain at this shares expense for me and I shall be watching from the sidelines !.

GLA Holders



I think Quarterly Report is due in Feb (for Oct-Dec period) but their financial year ends in March 2019. Vodafone own 45% stake in it don’t they?


Hi @J_Westlock,

Yes ~45% holding by Vodafone Group from a bit of googling. Seems they do quarterly reports of which the last for Q2 was in November 2018 making the next due mid Feb 2019 I guess. In Q2 they made a loss of Rs 4973 crore which google tells me is about £500M ?. Total market cap at the moment is Rs 32,000 crore I believe (before the rights issue) which makes a Rs 4973 crore loss pretty significant.




Sure. I also assume though that the Vodafone Group stake in Vodafone Idea is worth about $2.3bn… so around 5% of the whole Vodafone Group.


Hi All,

Vodafone Idea Q3 results out today, even worse than Q2 if anything by the look of it.

Vodafone shares UP by almost 1% in the UK today I note… obviously some people aren’t bothered about the India business.

GLA Holders, still glad I’m out…



@Footsie_Explorer, I assume you transferred your trading account to AJBell.
Were you forced to close your Virtual Portfolio account as a result?


Not sure who comment addressed to but for me the answer was not quite yes, but I ended up with a slightly new name.
Change seems to have ruined what were,at times, good discussion boards



@Deepsleeves2, Hi, are you not Footsie_Explorer? did you transfer your trading account from ii to AJBell? Not sure what you mean by ‘the answer was not quite yes’.

All I’m asking is if you did transfer your ii trading account did ii stop you from carrying on with your VP account.

I don’t want to lose my VP account I use this for monitoring my portfolios, it will be tedious to move the information to another site and I haven’t found one as good - I’m not fussed about the discussion boards as you say they are not as before.


Hi there @mememe sorry for the slow reply.
Yes - I moved to A J Bell and I am relieved. II has left my Virtual Portfolio open but in fact that was the main reason for me leaving because I could not get used to the new platform.
A J Bell has a portfolio watching facility but it was the discussion board that made II so great (before the changes). I just cannot forgive II for failing to realise what their biggest benefit was.
Good luck.


@Footsie_Explorer, good to know that your VP account is still open. I do like the portfolio monitoring on the VP site for me it is one of the best.
I have been with AJBell for several years though with the new platform I don’t think it’s as good as it was. They also still have exit charges unlike many other providers. Let’s hope the FCA make no exit charges mandatory sometime soon.


@Footsie_Explorer, how long did it take to transfer to AJBell and were you able to trade right up to the settlement date?