Vodafone Group’s (LSE: VOD) share worth has sunk 10% because the starting of 2022. Primarily based on its dividend forecast for this monetary yr (to March 2023) this decline means its shares now carry a 7.9% dividend yield.
This beats the typical FTSE 100 yield of 4.2% by a big distance. And issues get even higher for traders subsequent yr. For then the dividend yield jumps to eight%.
Does the prospect of large dividends make Vodafone a high revenue inventory to purchase? Right here I’ll look at its dividend forecasts for the short-to-medium time period and reveal whether or not I’d purchase the telecoms large for my very own portfolio.
Dividends tipped to rise!
Vodafone hasn’t grown its dividend for a number of years. In monetary 2019 it rebased the annual dividend from 15.07 euro cents per share to fix its steadiness sheet and fund infrastructure enhancements.
It paid a much-reduced 9 cent dividend cost then. It’s paid rewards at this degree throughout the next three years. And the Metropolis expects extra of the identical this yr. Nonetheless, the payout is tipped to rise to 9.2 cents in monetary 2024.
Dividend protection falls nicely beneath the specified safety benchmark of two instances and over, nevertheless. A studying above the 2 instances area offers a large margin of security within the occasion that earnings estimates miss.
For the following two years Vodafone’s anticipated dividends are lined round 1.2 instances by predicted earnings.
It’s price noting that some traders are sceptical about Vodafone’s capacity to satisfy these medium-term dividend forecasts. In addition to that weak dividend cowl the enterprise has a whole lot of debt on its steadiness sheet. It had €41.6bn price as of March, actually.
However I believe there’s an ideal likelihood that the telecoms agency will have the ability to meet present dividend estimates. That is due to its formidable knack of producing enormous quantities of money.
Adjusted money stream rose 8% final yr to €5.4bn, liquidity which allowed the corporate to make €2bn price of share buybacks. And Vodafone says it’s on the right track to generate strong money flows of €5.3bn in monetary 2023.
Studies have emerged just lately too that counsel the enterprise is contemplating promoting half of its 82% stake in its masts enterprise, Vantage Towers. This is able to assist cut back debt and provides it round £6bn of additional money to mess around with.
It’s under no circumstances sure that Vodafone will make this yr’s dividend forecasts. However the possibilities of the corporate doing it are very excessive, in my view.
And I imagine its dividend yields round 8%, mixed with a rock-bottom ahead P/E ratio of 10.5 instances, make it a extremely engaging worth inventory to purchase.
What’s extra, I’d purchase Vodafone shares to carry for the lengthy haul, too. I believe the massive funding it’s making in infrastructure, and the fast fee at which it’s profitable clients in fast-growing African markets, may assist it make spectacular income over the following decade not less than.