Aside from the obvious advantage of easy money, stocks that deliver a passive income offer something else: time. They don’t require active involvement, providing a steady income stream for minimal effort. High-yield stocks are ideal for investors who prefer more of a light-touch engagement with the markets and for those who lean towards a buy-and-hold strategy.
Thankfully, the FTSE 100 is filled with many attractive options. I currently have my sights set on Vodafone Group (LSE: VOD).
Stable business
The British telecommunications giant offers a range of services including mobile, fixed-line, and broadband. It operates in 22 countries, has partnerships with over 50 network operators worldwide, and is well positioned to benefit from the ongoing growth.
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Vodafone also has a particularly commanding position in the burgeoning African markets. Its money transfer service, M-Pesa, is the region’s largest fintech platform.
2022 saw revenue increase by 4.0% to €45.6bn as group operating profit increased by €0.6bn to €5.7bn. Vodafone has consistently demonstrated a commitment to delivering strong dividends, with 2023’s projected yield offering an 8.6% return at today’s price.
Reliable dividends
2022–2018 saw annual dividend yields of 9.27%, 6.78%, 6.62%, 5.19%, and 8.17%, for an average of 7.31% across the five-year period. However, this was offset by a steep decline in the share price over the same period. Vodafone shares lost over half of their value between April 2018 and April 2023, sliding from ~194p to ~95p. This means that despite receiving such consistent and generous dividends, any investor who bought stock in 2018 would still be looking at a negative return overall.
High debt
One reason for caution is Vodafone’s mountain of debt. The company currently has €65.42bn of outstanding liabilities and a debt to equity of 1.363. This deficit casts a shadow over the rest of Vodafone’s balance sheet. Many investors see this debt risk as a red flag.
Bottom incoming?
However, the future looks brighter for Vodafone. Several technical indicators point towards the stock price finding a floor at around the 80p mark. Meanwhile, many analysts believe the bottom may have already been reached.
Furthermore, its largest shareholder, the Emirati telecommunications group e&, recently increased its stake in Vodafone to 14.6%.
Additional high-profile stakes have been purchased by Liberty Global and Atlas Investissement, which respectively acquired 4.92% in February 2022 and 2.5% in September 2022. Retail investors are hoping that this inflow of backing from the big institutional players is a clear signal for a turnaround.
Attractive upside
No investment is without risk, but an 8.6% dividend yield offers comfortable insurance against a downswing in the stock’s underlying value. However, if the share price does indeed see a reversal, then the compounding returns of a price increase along with the continuing dividend yield make the upside of Vodafone look extremely attractive to me.
