Bonds v Equities

[Alaric]

I wonder what insights you gain by comparing corporate bonds to the shares of the same Company.

Taking Vodafone as an example, here's the fact sheet for one of its retail bonds.

https://www.hl.co.uk/shares/shares-sear ... 5.625-2025

Key points are that it has a coupon of 5.625%, but a price of around 120, so a capital loss is guaranteed. As a consequence the running yield according to HL is 4.59% whilst its redemption yield is 2.46%. By comparison a Gilt maturing in 2025 offers a redemption yield of 1.17%

https://www.hl.co.uk/shares/shares-sear ... ury-2-2025

So Vodafone is higher yielding than Gilts, but not into junk bond territory.

The ordinary shares on the other hand offer a dividend yield of 9.45%

https://www.hl.co.uk/shares/shares-sear ... d0.20-2021

The Stock Exchange site has a graph of profits which essentially shows there haven't been any for several years.

https://www.londonstockexchange.com/exc ... XSET1.html

In the absence of profits, what financial resources are they using to pay dividends? Revenue would appear sufficient to service the bonds, but what's left for shareholders?

[tjh290633]

Look at the Free Cash Flow, after paying dividends.

TJH

[Arborbridge]

https://www.hl.co.uk/shares/shares-sear ... d0.20-2021

The Stock Exchange site has a graph of profits which essentially shows there haven't been any for several years.

https://www.londonstockexchange.com/exc ... XSET1.html

In the absence of profits, what financial resources are they using to pay dividends? Revenue would appear sufficient to service the bonds, but what's left for shareholders?

Losses for two years, and in profit last year. As TJH points out, there is positive cash flow after paying dividends - I think for the past two years.

Goodness knows how all this accounting works, and what one can conclude apart from it all being smoke and mirrors - but it does seem that the free cash flow is OK at the moment. I also notice that debt is down about 15% on what is was three years back - if there's a problem paying the dividend, I would expect debt to be rising.

Arb.

[Alaric]

Goodness knows how all this accounting works, and what one can conclude apart from it all being smoke and mirrors - but it does seem that the free cash flow is OK at the moment.

Perhaps the income at current share prices is either an all time bargain, or perhaps they will slash the amount of dividend to bring it in line with their reduced share price.

Don't they also need to use the free cash flow for investment in networks, licenses etc?

[Arborbridge]

[

Don't they also need to use the free cash flow for investment in networks, licenses etc?

That's already taken into account in capex.

Arb.

[YeeWo]

viewtopic.php?p=210637#p210637

The issuance of hybrid securities totally clouds the observant investors judgement........

[Alaric]

There's material on a dedicated Vodafone thread which may help explain what's spooked the market in terms of pushing the share price down and the dividend yield up.

viewtopic.php?f=94&t=16360&p=210618#p210618