I have added a new holding to my portfolio, Vodafone. The idea came from reading David Einhorn's quarterly letter. The stock trades at a valuation similar to other telecom companies and carries a nearly 6% dividend yield. The kicker is the company has an asset that is worth at least $10 a share by my calculation, in its 45% ownership stake in Verizon Wireless. That implies 50% upside to the shares if this value is recognized. There is minimal downside with the 6% dividend yield.
This asset has been sitting on Vodafones balance sheet for over a decade frustrating many value investors who came before me. However, there is reason to believe that the asset will start paying dividends. Verizon controls Verizon Wireless and has been using cash flows from the wireless division to pay back debt to the parent company. The parent company in turn used that cash to pay dividends. However, by midyear all that debt will be paid back. Verizon will need money from Verizon Wireless to pay its own dividends. That will mean that Verizon Wireless will need to start paying dividends and Vodafone will receive 45% of those dividends. It is also possible that Verizon will buy out Vodafone. I like this position because it has little downside and a lot of upside. It will require patience as it is impossible to know when Verizon will act.