Vodafone’s 8.6% yield is attractive for my passive income portfolio

A high-yielding passive income is the holy grail for most investors. Vodafone’s strong historical dividends have delivered exactly that.

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Aside from the obvious advantage of easy money, stocks that deliver a passive income offer something else: time. They don’t require active involvement, providing a steady income stream for minimal effort. High-yield stocks are ideal for investors who prefer more of a light-touch engagement with the markets and for those who lean towards a buy-and-hold strategy.

Thankfully, the FTSE 100 is filled with many attractive options. I currently have my sights set on Vodafone Group (LSE: VOD).

Stable business

The British telecommunications giant offers a range of services including mobile, fixed-line, and broadband. It operates in 22 countries, has partnerships with over 50 network operators worldwide, and is well positioned to benefit from the ongoing growth.

Vodafone also has a particularly commanding position in the burgeoning African markets. Its money transfer service, M-Pesa, is the region’s largest fintech platform.

2022 saw revenue increase by 4.0% to45.6bn as group operating profit increased by 0.6bn to 5.7bn. Vodafone has consistently demonstrated a commitment to delivering strong dividends, with 2023’s projected yield offering an 8.6% return at today’s price.

Reliable dividends

2022­–2018 saw annual dividend yields of 9.27%, 6.78%, 6.62%, 5.19%, and 8.17%, for an average of 7.31% across the five-year period. However, this was offset by a steep decline in the share price over the same period. Vodafone shares lost over half of their value between April 2018 and April 2023, sliding from ~194p to ~95p. This means that despite receiving such consistent and generous dividends, any investor who bought stock in 2018 would still be looking at a negative return overall.

High debt

One reason for caution is Vodafone’s mountain of debt. The company currently has €65.42bn of outstanding liabilities and a debt to equity of 1.363. This deficit casts a shadow over the rest of Vodafone’s balance sheet. Many investors see this debt risk as a red flag.

Bottom incoming?

However, the future looks brighter for Vodafone. Several technical indicators point towards the stock price finding a floor at around the 80p mark. Meanwhile, many analysts believe the bottom may have already been reached.

Furthermore, its largest shareholder, the Emirati telecommunications group e&, recently increased its stake in Vodafone to 14.6%.

Additional high-profile stakes have been purchased by Liberty Global and Atlas Investissement, which respectively acquired 4.92% in February 2022 and 2.5% in September 2022. Retail investors are hoping that this inflow of backing from the big institutional players is a clear signal for a turnaround.

Attractive upside

No investment is without risk, but an 8.6% dividend yield offers comfortable insurance against a downswing in the stock’s underlying value. However, if the share price does indeed see a reversal, then the compounding returns of a price increase along with the continuing dividend yield make the upside of Vodafone look extremely attractive to me.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Matt Tandy has no position in any of the shares mentioned. The Motley Fool UK has recommended Vodafone Group Public. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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