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

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.