Here’s why Vodafone share price jumped after the dividend cut

Vodafone (LON: VOD) share price jumped by more than 3.3% on Friday even after the company announced a dividend cut. The stock of the embattled telecoms giant rose to 68.53p after selling its Italian unit.

In a statement, the company said that it would sell its Italian unit to Swisscom in an €8 billion deal as the CEO continued to simplify its operations. This announcement came a few weeks after Vodafone rejected an €11 billion deal by Iliad.

Vodafone will now spend some of these funds to reduce its substantial debt pile and pay shareholders. It will return €4 billion to investors through buybacks and then slash its dividend to 4.5 cents starting in 2025. It paid a 9-cent dividend in the last financial year. The CEO said:

“Our transactions in Italy and Spain will deliver €12 billion of upfront cash proceeds and we intend to return €4 billion to shareholders via buybacks, as part of our broader capital allocation review.” 

Therefore, Vodafone shares jumped because of the sale of its Italian business, a move that will help it reduce its debt pile. At the same time, this sale is part of a strategy to simplify its operations by selling some international operations.

Vodafone also wants to boost its market share in some key countries. It has proposed merging with Three in a bid to create a bigger rival to BT Group in the UK. 

Vodafone will also change its organisation structure in April. It will start reporting its financial results in five segments: Germany, Europe, Africa, Vodafone Business, and Vodafone Investments. 

The new transaction came a month after the company published mixed financial results. Its revenue came in at over €11.3 billion in the third quarter of last year. This was a 2.3% drop from the same period a year earlier. 

Vodafone also reiterated its guidance. It expects that its FY’23 adjusted EBITDA will be €13.3 billion with free cash flow coming in at €3.3 billion. 

Vodafone share price forecast

VOD chart by TradingView

The daily chart shows that the VOD stock price has been in a downward trend in the past few months. It has formed a descending channel, which connects the highest and lowest points since August last year.

Vodafone’s stock movement after the deal by Swisscom was a bit muted because most investors were already expecting it. It is now consolidating at the 50-day and 25-day moving averages while the Relative Strength Index (RSI) has moved above the neutral point.

Therefore, the outlook for Vodafone stock is neutral with a bearish bias. In this case, it may resume the downtrend and retest the lower side of the channel at 62.50p.