Vodacom Group Limited (JSE:VOD) dividend will increase to R4.30 on June 27. This brings the dividend yield to 5.9%, which is above the industry average.
See our latest analysis for Vodacom Group
Vodacom Group dividend well covered by earnings
While it’s good to have a high dividend yield, we also have to ask ourselves if the payout is sustainable. Prior to this announcement, the Vodacom Group paid out 84% of profits, but a relatively low 71% of free cash flow. This leaves a lot of money to reinvest in the business.
EPS is expected to grow 5.2% over the next year. If recent dividend trends continue, the 12-month payout rate could be 80%, which is a bit high but can certainly be sustainable.
The Vodacom group has a solid track record
The company has a steady history of paying dividends with very little fluctuation. The first annual payment in the past 10 years was R4.60 in 2012, and the most recent year’s payment was R8.50. This equates to a compound annual growth rate (CAGR) of approximately 6.3% per year during this period. Dividend growth has been quite reliable, so we believe this can provide investors with some good additional income in their portfolio.
Dividend growth prospects are limited
Investors might be drawn to the stock because of the quality of its payment history. Revenues have grown by about 2.1% per year over the past five years, which isn’t huge, but it’s still better than seeing them decline. Profits are not growing at all quickly and the company pays most of its profits in the form of dividends. This is fine as far as it goes, but we are less enthusiastic as it often signals that the dividend is likely to grow more slowly in the future.
Our thoughts on the Vodacom Group dividend
Overall, it’s probably not a great income stock, even though the dividend is being increased right now. The company generates a lot of cash, but we still think the dividend is a bit high for comfort. We don’t think Vodacom Group is a great stock to add to your portfolio if income is your priority.
It is important to note that companies with a consistent dividend policy will generate greater investor confidence than those with an erratic one. Yet investors must consider a host of other factors, aside from dividend payments, when analyzing a company. Earnings growth generally bodes well for the future value of corporate dividend payments. See if the 9 Vodacom Group analysts we follow predict continued growth with our free analyst estimates report for the company. Isn’t the Vodacom group quite the opportunity you were looking for? Why not check out our selection of the best dividend stocks.
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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.