The Airtel Africa (LSE:AAF) share price has dropped 8% since the beginning of 2023. It’s a descent that means the telecoms provider offers enormous dividend yields, based on current broker forecasts.
For this financial year (to March 2024) the telecoms giant offers a 4.4% dividend yield. This is far above the 3.8% average for FTSE 100 shares.
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And things get even better for next year. For then the yield marches to 4.8%.
But how realistic are current dividend forecasts? And should I buy Airtel Africa shares for my investment portfolio?
Dividend growth
City analysts expect the firm to raise last year’s payout of 5.45 US cents per share to 5.9 cents in the current 12-month period. Rewards are then predicted to rise to 6.4 cents per share in financial 2025.
Current earnings forecasts suggest that Airtel Africa will be in good shape to meet these projections, too. Dividend cover ranges between 2.9 times and 3.4 times for the next two years. A reminder that any reading above two times provides a wide margin of error.
That said, investors need to be aware of the high debts the business currently has. Investment in telecoms infrastructure is an expensive business that puts a lot of stress on the balance sheet.
Airtel had $3.5bn worth of net debt as of March, up from $2.9bn a year earlier. Capital expenditure rose 14% over the period to $748m, while the firm spent $500m to acquire spectrum licences across several of its markets.
But in better news, soaring earnings mean that the company’s ratio of net debt to adjusted earnings remains low. It came in at just 1.4 times last year despite those higher bills for capital expenses. Furthermore, cash generation remains impressive and operating free cash flow rose 10.4% in financial 2023, to $1.8bn.
Solid forecasts
On balance, Airtel Africa looks in great shape to pay the dividends analysts are expecting. But as a long-term investor I’m searching for more than big shareholder payouts this year and next. I’m searching for companies that can sustainably pay decent dividends and grow them.
One concern I have with this dividend share is the high levels of competition it faces. MTN, Vodacom, and Orange, for instance, all have significant brand power and strong balance sheets to help them expand and boost their infrastructure.
I’m also aware that the company’s earnings are dependent upon conditions in politically volatile African marketplaces. Upheaval here is another potential threat to earnings that most other FTSE 100 shares don’t face.
A top FTSE stock
Yet I still believe Airtel Africa shares are a top buy for growth and income investors. Rapid population growth and soaring disposable incomes in its territories mean investor returns could soar in the coming years.
The company’s customer base stood at 140m as of March. That’s an increase of almost 12m in just 12 months. As it expands its telecoms and mobile money operations into new territories these numbers should continue to soar.
I also like Airtel’s focus on some of Africa’s biggest and fastest-growing economies like Nigeria, Kenya, and Tanzania. This gives it a better chance to grow profits over the long term.
I’ll be looking to buy Airtel Africa shares for my own portfolio when I next have spare cash to invest.
