The next time I have some investable cash, I’m planning on buying Vodafone (LSE: VOD) and Diageo (LSE: DGE) shares.
Here’s why!
Vodafone
As one of the world’s largest telecoms businesses, the day to day for Vodafone hasn’t been smooth sailing in recent months. An announcement to rebase dividends hasn’t been met well by investors and the market.
I reckon this is reflected in the share price. Vodafone shares are down 2% over a 12-month period from 77p at this time last year, to current levels of 75p. However, the meandering chart below displays the up and down journey the business has been on recently.
My attraction to the stock is primarily related to the long-term growth prospects that could deliver excellent shareholder value and returns.
A big part of this is the rollout of 5G, which is ramping up. Plus, Vodafone’s foray into the African market, as well as its established presence already, is exciting. Demand for mobile services have taken off in recent years and there’s still lots of room to grow. This could mean boosted earnings, as well as juicy returns.
The natural risk here is that a complex geopolitical picture with the potential for issues could halt Vodafone making inroads and, in turn, profit. This is something I’ll keep a close eye on moving forward.
Otherwise, Vodafone is a profitable business, with a wide presence, and brand power. From a fundamentals perspective, the shares look decent value for money on a price-to-earnings ratio of 10. Plus, a dividend yield of close to 7% is attractive. However, I do understand that dividends aren’t guaranteed.
Diageo
If you like a tipple every now and then, there’s a good chance you’ve consumed one of Diageo’s popular brands. The spirit maker is a dominant player in the market, and has a worldwide presence.
The shares haven’t had the best time lately, down 21% over a 12-month period. At this time last year they were trading for 3,332p, compared to current levels of 2,630p.
I reckon a big part of this is weakened consumer spending due to economic uncertainty. The business has pointed to this in its Latin American, Caribbean, and even US segments in recent updates. As most of its brands are on the premium side, consumers are buying less, or turning to cheaper alternatives. This is an ongoing risk that I’ll keep an eye on moving forward.
From a bullish view, it’s hard for me to ignore Diageo’s brand power, as well as investor return policy. What’s known as a Dividend Aristocrat, the firm has increased payouts for 37 years. However, I do understand that past performance is not a guarantee of the future.
Diageo’s dividend yield stands at 3.1% at present, which isn’t the highest. However, I reckon once economic volatility dissipates, the firm could deliver growing returns for years to come.
Finally, Diageo shares are trading on a price-to-earnings ratio of 19. Although not the lowest, this is significantly discounted compared to its historical average of closer to 24 in recent years.
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Like buying £1 for 31p
This seems ridiculous, but we almost never see shares looking this cheap. Yet this Share Advisor pick has a price/book ratio of 0.31. In plain English, this means that investors effectively get in on a business that holds £1 of assets for every 31p they invest!
Of course, this is the stock market where money is always at risk — these valuations can change and there are no guarantees. But some risks are a LOT more interesting than others, and at The Motley Fool we believe this company is amongst them.
What’s more, it currently boasts a stellar dividend yield of around 10%, and right now it’s possible for investors to jump aboard at near-historic lows. Want to get the name for yourself?
See the full investment case
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More reading
- Should I buy Diageo shares or not touch them with a bargepole?
- 2 FTSE 100 shares investors should consider buying for powerful passive income!
- 2 FTSE 100 bargain shares I’d buy to target a £1,300 passive income!
- Why does the Diageo share price continue to fall?
- The Vodafone share price looks dirt cheap. I still wouldn’t touch it with a bargepole
Sumayya Mansoor has no position in any of the shares mentioned. The Motley Fool UK has recommended Diageo Plc and Vodafone Group Public. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
