Vodafone and Taylor Wimpey

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“The FTSE 100 enjoyed a 0.5% rise to 7.086 in early trading on Tuesday, helped by gains in Vodafone and the banking sector,” says Russ Mould, Investment Director at AJ Bell.

Vodafone

“A large number of investors own Vodafone for one reason: the dividend. While it has been seen for years as an attractive income stock, it has actually been an abysmal share to own for some time.

“The stock traded at an eight-year low ahead of today’s results as the market has been concerned about large debt levels, growing competition in various parts of the world, and the sustainability of the dividend.

“On paper, the latest financial results look ugly with Vodafone recording a €7.8bn loss for the first six months of the year.

“The reason why the share price is up today is upgraded guidance for free cash flow, being the amount of money it generates from operations minus the bit it needs for capital expenditure. Essentially it is the pot of money that is used to pay back debt and pay the dividend.

“Having a bigger pot of money raises hopes that the dividend isn’t going to be cut. Indeed, Vodafone today maintains its half-year dividend payment.

“Yet if you put the dividend to one side it still seems clear that Vodafone is far from a decent investment proposition. The results are a mess and full of asterisks and footnotes, making it hard for the average investor to understand.

“The new chief executive Nick Read is shouting about strategic priorities and taking decisive action. What he’s really saying is that Vodafone needs to be better at doing business, have a leaner operating model and generate stronger returns from its assets – essentially highlighting all its current flaws and key reasons why the share price performance has been so poor.”

Taylor Wimpey

“The guidance by housebuilder Taylor Wimpey alongside today’s trading update suggests 2019 could be a tricky year – but once that it is out of the way the group can get back on track fairly rapidly.

“The company believes sales volumes will be flat next year due to the wider economic and political uncertainty but cites the potential for ‘significant growth’ from 2020 onwards.

“Shareholders will be hoping this outlook is on the money, but the uncertainty referenced by the company makes this a hard one to call. At least the company is prepared to pay investors to be patient with a reiterated commitment to return £600m in dividends in 2019, up 20% on the 2018 level.

“For the time being, a combination of low interest rates, a competitive mortgage market and the Help to Buy scheme is keeping business ticking over, even if build costs are beginning to creep up.”

“As part of the company’s new strategy announced in May 2018 the company outlined plans to use its landbank more efficiently and, as it acknowledges, this will be crucial to the performance of the business going forward.”

These articles are for information purposes only and are not a personal recommendation or advice.