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Woodford drops Vodafone from £12bn High Income fund

Star fund manager Neil Woodford has sold his long-standing Vodafone stake in his £12 billion Invesco Perpetual High Income fund.

 
Woodford drops Vodafone from £12bn High Income fund

Star fund manager Neil Woodford has sold his long-standing Vodafone stake in his £12 billion Invesco Perpetual High Income fund.

Vodafone (VOD.L) had been one of Woodford’s top holdings in the fund, accounting for 4.9% at the end of 2011. But he has now sold out of the stock due to reduce forecasts for revenue growth and concerns about its ability to maintain margins, according to The Telegraph.

Invesco product director Mitchell Fraser-Jones told the paper: ‘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,’ he added.

‘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.’

Vodafone yesterday issued results reporting a 2.6% decline in group service revenues for the last three months of 2012, as it was hit hard by continued weakness in Europe. But its shares closed up 2.9p, or 1.7%, yesterday at 173.3p, with analysts Charles Stanley claiming the company remained a good buy. Nomura analyst James Britton, however, expressed concern about the 'lack of certainty' for the dividend.

Woodford's move is significant because Vodafone was the UK's biggest dividend payer last year, shelling out a total of £7.4 billion, beating oil giant Shell which paid £7.2 billion, according to the Capita Registrars UK Dividend Monitor published this week. Despite its largesse with dividends, helped by a special £2.2 billion payment funded by its share in a mega-dividend from Verizon Wireless in the US, fund managers have been concerned about the prospects for the dividend. Last October Vodafone dropped out of Citywire Top Stocks as sentiment soured. 

Woodford’s ability to get the big calls right on the fund, such as selling out of banks before the credit crisis, and avoiding the dotcom bubble, means the fund has enjoyed a stellar long-term performance record. The fund marked its 25th anniversary this week, and would have returned 1,906% to investors who reinvested dividends since its launch.

31 comments so far. Why not have your say?

Codger

Feb 08, 2013 at 16:32

When a company announces a share buy-back, it is probably time to sell.

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RICHARD AUSTIN

Feb 08, 2013 at 17:00

Woodford selling VOD. is news, what replaces it, is bigger news?

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Luckycontrarian

Feb 08, 2013 at 17:04

@Codger - would you sell Apple now following a 25% fall in the share price over the last 6 months and a share buyback announcement?

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David West

Feb 08, 2013 at 18:49

@Codger - not really since buy-backs reduce the number of shares in circulation therefore, usually, increasing the price of the remaining shares.

When companies have cash reserves which they cannot or do not want to use for expansion/reinvestment in the business, they have several choices. Two of them are to return the cash to shareholders via a return of capital or an increased dividend or to buy back their own shares. Neither of which is a good reason to sell.

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David West

Feb 08, 2013 at 18:50

Forgot to mention, if Neil Woodford considers Vodaphone a sell, that's good enough for me.

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David West

Feb 08, 2013 at 18:52

Should a said Vodafone!

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trefor

Feb 08, 2013 at 19:09

Buybacks should have no effect on the share price as although the number of shares has fallen, cash has been paid out as well. In fact they are often seen as a positive signal along the lines that if the company thinks the shares represent good value at that price, others may want to follow suit.

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rik via mobile

Feb 08, 2013 at 20:41

foolish descion in my clever view... the shares will be 2 quid in a month. baaaaaaa baaaa sheep mentality

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Johnill

Feb 09, 2013 at 02:44

I have never liked share buybacks. In my opinion this money should be given to shareholders as a special dividend. Same same last year.

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Gail Harrison

Feb 09, 2013 at 08:56

Sold my 30000 share holding in Vod and made a substantial loss. Would it be a wise move to buy again or should I put my money elsewhere?

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MattM76 via mobile

Feb 09, 2013 at 09:01

DYOR of course, but I would rate VOD as a hold at best. At around 170ish it shows no sign of breaking out and growth prospects look limited in the short term.

I hold VOD and watching the next few months closely.

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Gail Harrison

Feb 09, 2013 at 09:11

Thanks for that. I think I will hold fire for the moment.

It is still tempting though when interest rates are so low and VOD are still

paying out quite respectable DIVs

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Eddie Harvey

Feb 09, 2013 at 09:40

If VOD can afford a buy back they can also afford to maintain the dividend. I am quite happy to hold for the dividend and wait for Europe to recover, which I am sure it will in time.

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Brian Richards

Feb 09, 2013 at 10:52

Woodford sold Tesco was that a good idea? Woodford sold Shell was that a good idea, Woodford retains 8% +plus in Astra Zeneca is that a good idea i don't think so .Vodafone is a well run company unfortunately have you heard there is a problem in Europe. Shares have already picked up as the current price is too low ,with a good divi its a hold.

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Stray

Feb 09, 2013 at 11:37

I bought VODA recently at 158 after they looked to have found a bottom at 155. Thought I was using Woodford strategy of buying when everyone does not love . Plus getting a 6% divi at that price. So call me naive but i shall be holding and looking to sell at around 190 the recent previous high, in a year or two , once had 6% for a while.

Neil has a great track record, but his fund yield at 3.5% does not impress me much. Plus I agree Astra just does not look cheap or likely to fly higher to me looking at the charts. Glaxo looks a better pharma holding to me, and if it dips to £13.75 again i'll be buying it again, i sold last week at £14.50 after holding for last 2 years at purchase price of £12.

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donald waugh

Feb 09, 2013 at 11:41

Who now holds the shares that Woodford held and why ?

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Tony Peterson

Feb 09, 2013 at 13:13

I must have bought some of them - I've been adding to my holdings (which were already in profit) at prices between 154 and 162 over the past couple of months - and already showing nice profits. Thanks Neil.

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David West

Feb 09, 2013 at 13:40

It's worth mentioning that although VOD is currently paying an acceptable dividend this may not be sustained into the future. As Neil is running income funds this has to be a consideration and one which I am sure he may know a little more about than us. Just as a matter of interest, and I am fully aware that past performance is considered not to be a guide for future returns, but, £10,000 invested in his High Income Fund at launch in 1988 would now be worth £71,156 in capital terms. In addition to the capital appreciation, during that time it would have paid out a total of £36,136 in dividends. So, he must be doing something right. He's a conviction invester and does not follow trends unless he believes their worth it. His funds do not go up as quickly as some others in rising markets but overall his long term performance is extremely good.

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Paul Q

Feb 09, 2013 at 20:39

The headline refers to the High Income fund only. Does that mean that other IP funds such as Income / Distribution are keeping VOD ?

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Martina

Feb 09, 2013 at 23:43

Its my understanding Paul that whatever mr Woodford does to the High Income fund he also does to the Income fund. I may be corrected on this but he does tend to try and make them parallel.

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Northener

Feb 10, 2013 at 08:15

What Mr Woodford is going or brought already instead , do not tell me he will keep CASH.

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Stray

Feb 10, 2013 at 10:16

Well he is certainly being contrarian by selling a high income stock at an historically low price. Even if it cuts divi it will still be paying a lot more than the 3.5% his fun pays.

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RichardT

Feb 10, 2013 at 10:21

@Codger. Like it or not, Vodafone has had a share buy back programme in operation for several years. When exactly was the time to sell?

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Eddie Harvey

Feb 10, 2013 at 14:15

Northener et al. I have just read, in a leaflet from Hargreaves L, that he believes "an opportunity has opened up in pharmaceuticals"

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michael smith

Feb 10, 2013 at 16:56

I have a very long term investment with Vodafone and have held steady on all adverse occasions bar one - and that cost me. Since then I have steadily built up my holdings and have seem good returns. The volatility danger for a company like vodafone, is invester confidence! Vodafone returns massive operating profits year on year. This year they, like many other companies, are holding back on re-deploying profits, and instead of aquiring other companies they have shed some of their less profitable operation, like their internet provision(Vodafone at home). I for one will not only be holding onto my shares, but will buy more when the price reaches my buy level £1.55 - I may or may not have a long wait .

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Gail Harrison

Feb 10, 2013 at 17:32

Michael that comment is encouraging. I think I will probably follow your lead and buy again when and if the price reaches £1.60 or less.

No point in putting my hard-earned money into the bank or building society at the present rubbish interest rates.

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Mm76 via mobile

Feb 10, 2013 at 22:55

Gail,

Why so keen on VOD? I truly don't mean to sound pious but never get emotionally attached to a share. If VOD isn't right for you now then look around for other high yeilders with better prospects.

VOD is a quality company but it faces shrinking markets, 4G auctions, patchy relationship with Verizon and currently buying back shares.

These aren't insurmountable problems but why buy into them when there's hundreds of other ETFs, funds and shares to buy into?

Just a thought. :)

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Gail Harrison

Feb 10, 2013 at 23:13

Very good point.

I guess I feel within my comfort zone dealing with a familiar equity.

However, I would welcome any suggestions for alternative investment

opportunities.

You have probably realised by now that I am quite a newcomer to share-dealing.

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Stray

Mar 08, 2013 at 16:33

Well that didnt take long to prove it was cheap at 158.

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Tony Peterson

Mar 08, 2013 at 16:46

Stray

How right you are. Will someone kindly point out what Woodford is currently selling. I'll have some of that too please.

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Stray

Mar 08, 2013 at 17:00

& just look at the Astra v Glaxo argument i made

Astra continues to be a dog and Glaxo is back towards 15.00 high and looks set to break out..

Glaxo has been obviously and better buy on the charts for last 2 years.

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