The Beginners' Portfolio: Should We Sell Vodafone Group Plc?


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LONDON: The Beginners' Portfolio is based firmly on a "long-term buy and hold" ethos, or "LTBH." Now, some investors have done very well by taking that to mean "forget and hold forever," but that's really not my approach. No, for me, investments need to be reexamined at regular intervals, based on two key criteria:

Firstly, on price. If a share price has risen so that its valuation looks to be fully realised, and it's not a bargain any more, consider selling and looking for a better place for the money. I don't believe any of the Beginners' holdings are at that stage.

Secondly, if the fundamental nature of the company, including any of the factors that led to the original purchase decision, have changed, it's also time for a reevaluation. And Vodafone has changed!

There could be big changes in the pipeline based on Vodafone's relationship with Verizon Communications , with Vodafone owning 45% of Verizon Wireless. We recently had Verizon hinting that it might not pay a dividend this year, but that turned out to be a bit of brinkmanship -- Verizon wanted the cash as much as Vodafone, and the payment materialised as usual.

Then we've heard all sorts of on-again, off-again stories about a possible takeover, or a merger of the two companies, or the sale of Vodafone's Verizon Wireless stake.

I'm convinced something will happen, but this is really not news, as these shenanigans were happening at the time of our purchase -- and I can only see an eventual deal being to the advantage of Vodafone shareholders. On this score, I'll revisit our Vodafone holding when something actually happens.

The dividend
But there has been another development, and something very important has changed -- Vodafone has announced a change in its dividend policy! The dividend was a key part of my original buy decision, and I was looking forward to yearly rises in the cash paid out.

And when final results were released on 21 May, the full-year dividend was hiked by 7% to provide a 5.1% yield on the share price at the time. Forecasts for next year suggest a 5.3% yield on the current share price of 194 pence ... so what's the problem?

Well, among the rest of the announcement, Vodafone told us that, in future, it "aims at least to maintain the ordinary dividend per share at current levels." That's no commitment to any future rises, and the company would satisfy its new policy even if it never again lifted its annual payout.

And that does concern me, as I see Vodafone as being mainly a mature dividend payer, with share price growth a bonus. It's certainly not enough to make me want to dump the shares yet -- not with the new policy effectively promising a yield at least close to that 5.3% for March 2014, and not with the shares on a modest forward P/E of 12.

No more rises?
But, if the dividend does stagnate, I'll be revisiting my decision -- and I'll be paying careful attention to dividend news at interim time.

Finally, my idea of the kind of shares that should make up the core of a beginner's portfolio is the same as my choice for an ISA, or a retirement portfolio -- or, in fact, any portfolio. I'd start with good strong companies that should stand the test of time, and potentially reward you for decades.

Not surprisingly, the Fool's top analysts think similarly, and they have put together a special report detailing five blue-chip shares that I think would be ideal for anyone at the start of his or her investing career.

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Alan Oscroft has no position in any stocks mentioned. The Motley Fool recommends Vodafone and Vodafone Group. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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