After all of the excitement following Vodafone’s (LSE: VOD) (NASDAQ: VOD.US) deal to sell its stake in the joint venture with Verizon, 2014 has proven to be a dismal year for investors in the UK’s biggest telecoms company.
That’s because shares in Vodafone have fallen by 8% in the last six months and the company has shown little (if any) sign of improving its bottom line over the next couple of years. Therefore, it’s of little surprise that many investors are questioning whether holding Vodafone is a good move.
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However, for longer-term investors, such as those with an eye on their retirement fund, Vodafone could prove to be a stock that is well-worth holding on to. Here’s why.
Financial Strength
Although Vodafone is now a lot smaller than prior to its deal to sell the stake in Verizon Wireless, it remains a vast enterprise that has very deep pockets. Indeed, while it has made numerous acquisitions in recent years, such as Kabel Deutschland and Spain’s Ono, it could still buy multiple companies without putting its balance sheet at risk. This affords it huge flexibility and means that, while it remains focused on a European strategy, it could increase diversity relatively easily and focus on regions that have a better short-term outlook than the Eurozone.
Further Acquisitions
While Vodafone’s reputation for making shrewd acquisitions has been hit by news of an investigation into Spain’s Ono, with tax fraud being alleged, this is unlikely to deter Vodafone from making further purchases. Indeed, Vodafone has the potential to expand into emerging markets and could yet switch its attention away from Europe and towards Asia in particular. This would make sense for Vodafone as it is under-represented in emerging markets and it could give the company’s bottom line a major boost.
Looking Ahead
Clearly, Vodafone’s key appeal is its income potential. Shares in the company currently yield a mightily impressive 5.7% and this makes Vodafone one of the highest yielding stocks in the FTSE 100. Furthermore, even though the Eurozone is not currently growing, Vodafone is expected to increase its bottom line by 3% next year, which shows that it is able to improve efficiencies and deliver growth even when the wider economic environment is challenging.
Indeed, with the situation in the Eurozone likely to improve significantly over the long run and Vodafone having the potential to expand into other, faster-growing regions, it could prove to be a strong long-term play. As a result, Vodafone could help you to retire rich.
