Vodafone Group (LSE: VOD) shares have risen strongly in value in 2022. While the broader FTSE 100 is down 2% since the start of the year, Vodafone has risen around 16%.
The falling Footsie means dividend yields have surged across much of the index. Yet Vodafone also packs a big yield in spite of its meaty share price gains.
For this financial year to March 2023, the company’s yield sits at 5.9%. This is far above the lead index average of 4%. And for fiscal 2024, Vodafone’s yield nudges even higher to 6%.
Here, I’ll look at the telecoms giant’s dividend forecasts for the next two years. And I’ll explain whether I’d buy Vodafone for my own dividend portfolio today.
Dividend history
For an income investor seeking dividend growth, Vodafone hasn’t been an attractive pick for a long time. The full-year dividend has been locked at 9 euro cents per share for four successive financial periods.
But City analysts think dividends will finally begin rising again from the current year. A 9.1-cent-per-share dividend payment is forecast for this year. A 9.2 cent reward is also predicted for next year.
Are dividend forecasts solid?
But big dividend yields count for little if a company’s payout forecasts look stretched.
Unfortunately, for Vodafone investors, the firm doesn’t have the most solid dividend cover out there. For the next two years, they’re covered between 1.3 and 1.4 times by anticipated earnings. Investing theory says that a reading of 2 times and above provides a good level of protection.
Having said that, Vodafone does have excellent financial strength that could enable it to meet current dividend forecasts even if profits disappoint.
The company’s adjusted free cash flow leapt around $400m year-on-year in the 12 months to March, to €5.4bn. Vodafone expects cash flow to remain robust at around €5.3bn in the current period too.
The verdict on Vodafone
Due to its cash-flush balance sheet I think the Vodafone dividend forecast looks pretty secure. But there are some key threats investors need to consider.
For one, the global economy is decelerating sharply. And while profitability at telecoms stocks tends to be quite stable, the sector isn’t totally immune to broader conditions.
Secondly, Vodafone’s operations require huge amounts of cash. This is why net debt stood at an eye-popping €41.6bn as of March. So while the company is highly cash generative, the huge investments it is making (and especially in areas like 5G) are consuming lots of capital.
That said, Vodafone is still a dividend stock I’d buy for my own portfolio. As I say, I think there’s a good chance the business will meet current dividend projections.
And as a long-term investor, there’s a lot I like about the business. Investments in broadband and 5G should deliver robust profits growth over the next decade. And the company’s telecoms and mobile money operations in fast-growing African economies provide excellent revenues possibilities.
