The last six months have been hugely disappointing for investors in Vodafone (LSE: VOD) (NASDAQ: VOD.US), with the telecommunications company seeing its share price fall by 16%. This is well behind the 1% gains made by the FTSE 100 over the same time period. However, after the sale of its stake in Verizon Wireless earlier in the year, Vodafone could be all set for a much brighter future and could be worth buying right now. Heres why.
A Strategy Shift
The sale of its stake in North American operato, Verizon Wireless made Vodafone much more focused on Europe. In fact, the deal formed part of a new strategy to concentrate on buying high-quality European assets at bargain basement prices. For instance, Vodafone purchased Kabel Deutschland and Spains Ono for their long term potential.
Such deals look set to take a while to come good, with the Eurozone still struggling to deliver improved economic growth in the short term. However, the strategy could turn out to be a highly profitable one in the long run, with Vodafone positioning itself perfectly to benefit from an improved performance in the Eurozone.
Indeed, while many investors are put off by the Eurozones lack of growth, Vodafone sees it as an opportunity. Last weeks decision by the ECB to reduce interest rates and begin a stimulus programme could turn out to be good news for Vodafone in the short and long run. Thats because stimulus measures could help to reinvigorate the Eurozone and allow it to push past its currently anaemic growth levels. Vodafone, as a major operator in the Eurozone, would be likely to benefit hugely from such a change.
As well as considerable growth potential in Europe, Vodafone also offers investors a generous dividend. Indeed, Vodafones yield has been aided by the previously mentioned fall in the share price during the last six months, which means that shares in the company now yield a highly impressive 5.5%. Although dividends per share are currently higher than earnings per share, Vodafones long term growth potential and financial strength mean that dividends should rise at a moderate pace moving forward.
Certainly, the ECBs latest move is unlikely to shift the Eurozone into top gear overnight when it comes to economic growth rates. However, it does have the potential to boost growth across the region, which would be of huge benefit to Vodafone. Its strategy of buying undervalued European assets seems to be a sound one and, although it will require a fair degree of patience, a yield of 5.5% should help to make amends for potentially slow growth in the short run.
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