The FTSE 100 is known worldwide for its sometimes-huge dividend payments. And one stock on the index has caught my eye recently. The company’s latest drop means it trades for 28% cheaper than last year.
Not only that, the firm boasts some excellent financials and a dizzying near 9% yield.
All in all, for me, this could be the deal of 2022 so far.
£1,000 passive income?
The stock here is telecommunications giant Vodafone (LSE: VOD). It trades at a very cheap-looking 91p per share right now.
That’s a 28% discount on its value from last year. And the reduced share price means the dividend payment, as a percentage, goes up.
That means the annual yield from Vodafone now stands at an incredible 8.88% payout. That’s the second-highest dividend return I could get on the entire FTSE 100.
At that level, I could get a £1,000 yearly passive income from an £11,000 stake.
A payout close to 9% is extremely rare. Does it mean the share price is about to take off? If so, now might be a fantastic time to pick up a few shares.
Selling for 51% of its value
Looking at the company itself, Vodafone has operations in 151 countries. Its primary segment of mobile networks has 323 million customers worldwide.
This global reach has meant the Berkshire-based firm has raked in over €40bn in revenue every year for a decade. These strong sales have helped free cash flow rise to near the €10bn mark.
| 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 | |
| Revenue | €46.4bn | €57.7bn | €52.0bn | €47.6bn | €46.6bn | €43.7bn | €45.0bn | €43.8bn | €45.6bn |
| Free cash flow | (€0.6bn) | €1.1bn | (€1.7bn) | €5.4bn | €5.4bn | €4.8bn | €9.8bn | €8.6bn | €9.0bn |
| FCF yield | -0.90% | 1.40% | -2.40% | 7.90% | 8.80% | 10.60% | 26.00% | 18.70% | 21.00% |
Cash levels this high can support Vodafone’s near-9% yield. They can give the firm cash for investment and growth, and also to pay down debt obligations.
A 0.51 price-to-book
Another fantastic sign for me is the firm’s price-to-book ratio at 0.51. It’s rare to find a company selling for less than its assets. Rarer still for only 51% of its assets.
This gives me a great margin of safety as an investor. It’s hard to imagine the share price falling much further.
Lower than 2001
Superb financials aside, what are the risks that come with Vodafone stock?
Well, the firm’s share price exploded in the dotcom boom then dipped shortly after. Even if I’d bought at the lowest point in 2021, I’d have received an average 5.1% yearly return. But most of that return is dividends-based. The share price today is actually lower than in 2001.
While 5.1% isn’t a disaster, it’s not the kind of figure I’m looking for to build long-term wealth.
As such, if I bought, I’d hope that Vodafone’s future performance would be better than the last 22 years or so.
Am I buying?
Its global strength, along with Vodafone’s generous dividend and incredibly low price-to-book ratio make me think this is a strong buy.
Top analysts like Goldman Sachs and UBS agree, with an average price prediction of £1.20 compared to its current price of 90p. That’s a decent upside alone. And Deutsche Bank is even predicting £1.80.
All in all, if I had a spare £1,000, I’d open a position here.
