Image source: Vodafone Group plc
The dividend on Vodafone’s (LSE:VOD) shares was cut by 40% in 2019 and then halved in 2024. But the group plans to increase its payout for its current financial year by 2.5%.
With plenty of FTSE 100 income stocks to choose from, it can sometimes be difficult to see the wood for the trees. But is it worth considering buying Vodafone’s shares? Let’s take a look.
A fallen giant
Given the group’s recent problems, it’s sometimes hard to believe that it was once the UK’s most valuable listed company. Today (13 January), it ranks 33rd. But there’s some evidence that a comeback is on the cards. Since the group released its half-year results on 11 November, its share price has risen nearly 15%.
Yet rather than focus on capital growth, I’m going to look at the stock’s potential for passive income. After all, the group used to have a double-digit dividend yield. Admittedly, following those significant cuts, its dividend is far less generous than it used to be. But a bit like its share price, things are changing.
As mentioned, the group says it expects to grow its dividend for the year ending 31 March 2026 (FY26) by 2.5%. If it does, it means its final payout for the year will be 2.37 euro cents (2.06p at current exchange rates) bringing its total payment for the year to 4.62 euro cents (4.01p). This implies a yield of 3.9%.
What does this mean?
On this basis, 5,000 Vodafone shares costing £5,089 today will receive £103 for the half-year, probably in August. And assuming they don’t sell their shares, shareholders will also be entitled to receive future payouts. Analysts are forecasting modest increases for FY27 and FY28. If they’re correct, the yield improves to 4.7%.
Of course, dividends can’t be guaranteed. Indeed, as we have seen, Vodafone’s a good example of this. Dividends are a distribution of profit to shareholders. If earnings fall, then it’s likely to call into question the sustainability of a company’s payout.
However, analysts are forecasting earnings to rise faster than the company’s dividend. By FY28, they’re expecting earnings per share to be 2.36 times the dividend. This could provide some comfort to income investors that recent cuts are unlikely to be repeated. In cash terms, 5,000 shares could earn £208 during the full year in dividends.
| Financial year | Forecast earnings per share (euro cents) | Forecast dividend per share (euro cents) | Forecast payout ratio (%) |
|---|---|---|---|
| FY26 | 8.22 | 4.56 | 55 |
| FY27 | 9.78 | 4.67 | 48 |
| FY28 | 11.33 | 4.79 | 42 |
Buyer beware
But these are forecasts, which could prove to be wide of the mark.
Germany remains the group’s biggest market but a change in law means landlords are no longer able to bundle TV contracts with tenancies. This has badly affected Vodafone. Although its FY26 half-year results disclosed 0.5% growth in Q2 service revenue in the country, it’s still losing customers.
Also, infrastructure in the industry is expensive. This could put pressure on the group to further increase its borrowings.
Final thoughts
Yet I believe a turnaround is under way. The group’s doing particularly well in Africa. As part of its growth plans, it recently announced its intention to take full control of Kenya’s largest telecoms operator.
Its half-year results revealed a 7.3% rise in total revenue and a 5.9% increase in EBITDAaL (earnings before interest, tax, depreciation, and amortisation, after leases). This suggest Vodafone’s on track to deliver the forecast growth in dividend and why income investors could consider the group’s shares.
