Investment manager M&G, with its juicy forecast 10% yield, is a dividend stock I’d snap up today.
I’d also buy shares in the UK’s big banks. Barclays‘ 4.8% dividend yield, and the 5.7% from Lloyds Banking Group, both look good to me. The low valuations of the shares make them even better.
Then there are downtrodden house builder shares, like Taylor Wimpey with an 8% yield, and insurers like Aviva, also on 8%.
I have all these dividend stocks on my want list for future buys.
Like the plague
But I’ll tell you one dividend stock I wouldn’t touch with a bargepole right now. It’s one of the biggest. It’s telecoms giant Vodafone (LSE: VOD).
Yes, I’d turn my nose up at a mooted 10% yield this year. And I’d shun its years of filling shareholders’ pockets with cash.
Let me explain why.
All change
I do actually like what Vodafone is doing now. Or, at least, planning to do. I reckon the firm could be setting itself up for a bright long-term future.
In the words of new CEO Margherita Della Valle: “Our performance has not been good enough. To consistently deliver, Vodafone must change“.
She went on with: “We will simplify our organisation, cutting out complexity to regain our competitiveness. We will reallocate resources to deliver the quality service our customers expect and drive further growth from the unique position of Vodafone Business“.
Market sceptics
The problem is, I think the market currently values Vodafone on past performance, and on what it looks like today. You know, that “not good enough” thing.
We won’t know the full details of the new strategy until it pans out. But it does look like it’ll mean a lot of cost cutting. We know, at least, that the firm plans to cut 11,000 jobs in the next three years.
And when cost cuts are on the agenda, the dividend must be a candidate for the sword.
But, let’s see how the dividend looks for now.
What earnings?
The 2023 dividend wasn’t close to being covered by earnings. And we might just see break even by 2026, if broker forecasts are right.
That means it could be three more years before Vodafone makes enough in earnings to pay for its dividends. Never mind cash needed for years of future network investment, or anything like that.
I just don’t think investors were confident in Vodafone’s long-term dividend outlook, even before this latest shake-up. Why else would they have dumped the shares, pushing the price down 50% in five years?
Money for nothing?
A dividend is no good if we lose the money on the share price.
I could be wrong, and the new Vodafone could prove to be a quick winner. In fact, in the long run, I can see a leaner and fitter dividend machine here. But maybe at lower yields.
And I remember Aviva, which needed a similar reawakening. Its stock still isn’t really on the way back up yet.
So, yes, I think there’s a potential good future for Vodafone. But there could be more pain getting there.
