Time To Cash Out Of Vodafone Group Plc (ADR) (VOD)?

Page 1 of 2

When America was on the doorstep of the Roaring ’20s and the birth of modern American consumerism, the predecessor to SunTrust Banks, Inc. (NYSE:STImade a shrewd investment.

When The Coca-Cola Company (NYSE:KO) went public, the bank was part of the underwriting group. The lead underwriter, JPMorgan Chase & Co. (NYSE:JPM), took its $100,000 fee in cash. SunTrust Banks, Inc. (NYSE:STI) took its payment in the company’s newly issued shares, which came out to be around $70,000. The stock certificates and Coca-Cola’s secret formula sat in the bank’s vault for nearly a century growing to nearly 30 million shares worth more than $2 billion and paying around $53 million annually in dividends.

Fast-forward to 2012. After a brutal financial crisis, SunTrust Banks, Inc. (NYSE:STI) decided to do what many considered sacrilege. After being battered by a soft economy, tighter government regulation and bad loans, the company decided to sell its stake in The Coca-Cola Company (NYSE:KO), use the cash to clean up its balance sheet and focus on its future.

To SunTrust Banks, Inc. (NYSE:STI)’s credit, it followed the old Wall Street axiom “Sell when you can, not when you have to.” The bank did wait until the crisis had subsided and the price of The Coca-Cola Company (NYSE:KO)’s stock had recovered from its crash lows to fetch a more attractive premium.

Flickr/Karl Baron
After Vodafone’s initial investment in Verizon 10 years ago, the company will take in around $130 billion in cash when all is said and done.

The latest example of a smart company cashing in some chips when it’s time is Vodafone Group Plc (ADR) (NASDAQ:VOD). One of my main reasons for owning shares of Vodafone, which I profiled a year ago, was the company’s 45% stake in U.S. wireless giant Verizon Communications Inc. (NYSE:VZ).

Vodafone Group Plc (ADR) (NASDAQ:VOD)’s investment has paid off. After an initial investment of $20 billion 10 years ago, the company will take in around $130 billion in cash, Verizon Communications Inc. (NYSE:VZ) stock and notes when all is said and done. That comes out to an average annual return of 55%, not including dividends. That’s pretty strong in anyone’s book.

That same decade has treated Vodafone Group Plc (ADR) (NASDAQ:VOD) investors just as well. Not including dividends, shareholders have gathered annual returns of around 16%. Dividends would boost that to an annual average of well over 20%.

And thanks to the Verizon Communications Inc. (NYSE:VZ) deal, investors will continue to reap rewards. Vodafone Group Plc (ADR) (NASDAQ:VOD) shareholders are scheduled to receive a distribution that represents about 70% of the sale in cash and Verizon stock.

In addition, the company plans to increase its common dividend by 8% in 2014. That’s on top of an already generous 4.7% yield.

So now what? Do Vodafone Group Plc (ADR) (NASDAQ:VOD) holders take the money and run? Not on your life.

Kings Of The Wild Frontier
Currently, 70% of Vodafone’s revenue comes from Western Europe. We all know the growth story there: There is no growth.

Flickr/Martin Pettitt
Vodafone has been gearing up for an ambitious and well-financed stab into emerging and frontier markets.

Herd wisdom would tell us that in selling its crown jewel, the Verizon Communications Inc. (NYSE:VZ) stake, the company is condemning itself to stagnant growth mediocrity. Quite the contrary. Vodafone Group Plc (ADR) (NASDAQ:VOD) has been gearing up for an ambitious and well-financed stab into emerging and frontier markets. It’s the frontier market thesis that excites me the most.

Page 1 of 2