Some investors rely on dividends for growing their wealth, and if you’re one of those dividend sleuths, you might be intrigued to know that Vodafone Group Plc (LON:VOD) is about to go ex-dividend in just 3 days. This means that investors who purchase shares on or after the 28th of November will not receive the dividend, which will be paid on the 7th of February.
Vodafone Group’s next dividend payment will be UK£0.045 per share. Last year, in total, the company distributed UK£0.087 to shareholders. Based on the last year’s worth of payments, Vodafone Group has a trailing yield of 4.8% on the current stock price of £1.5658. We love seeing companies pay a dividend, but it’s also important to be sure that laying the golden eggs isn’t going to kill our golden goose! So we need to investigate whether Vodafone Group can afford its dividend, and if the dividend could grow.
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Vodafone Group reported a loss last year, so it’s not great to see that it has continued paying a dividend. Given that the company reported a loss last year, we now need to see if it generated enough free cash flow to fund the dividend. If cash earnings don’t cover the dividend, the company would have to pay dividends out of cash in the bank, or by borrowing money, neither of which is long-term sustainable. Fortunately, it paid out only 37% of its free cash flow in the past year.
Have Earnings And Dividends Been Growing?
Businesses with shrinking earnings are tricky from a dividend perspective. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Vodafone Group was unprofitable last year and, unfortunately, the general trend suggests its earnings have been in decline over the last five years, making us wonder if the dividend is sustainable at all.
We’d also point out that Vodafone Group issued a meaningful number of new shares in the past year. It’s hard to grow dividends per share when a company keeps creating new shares.
The main way most investors will assess a company’s dividend prospects is by checking the historical rate of dividend growth. Vodafone Group has seen its dividend decline 5.5% per annum on average over the past ten years, which is not great to see. While it’s not great that earnings and dividends per share have fallen in recent years, we’re encouraged by the fact that management has trimmed the dividend rather than risk over-committing the company in a risky attempt to maintain yields to shareholders.
From a dividend perspective, should investors buy or avoid Vodafone Group? It’s hard to get used to Vodafone Group paying a dividend despite reporting a loss over the past year. At least the dividend was covered by free cash flow, however. Overall it doesn’t look like the most suitable dividend stock for a long-term buy and hold investor.
Curious what other investors think of Vodafone Group? See what analysts are forecasting, with this visualisation of its historical and future estimated earnings and cash flow.
We wouldn’t recommend just buying the first dividend stock you see, though. Here’s a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.