Here’s the Airtel Africa dividend forecast for the next 2 years!

Airtel Africa shares have a P/E ratio of below eight times. They also carry large dividend yields based on current forecasts. Are they too cheap to ignore?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Young mixed-race woman jumping for joy in a park with confetti falling around her

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

The Airtel Africa (LSE:AAF) share price has dropped 8% since the beginning of 2023. It’s a descent that means the telecoms provider offers enormous dividend yields, based on current broker forecasts.

For this financial year (to March 2024) the telecoms giant offers a 4.4% dividend yield. This is far above the 3.8% average for FTSE 100 shares.

And things get even better for next year. For then the yield marches to 4.8%.

But how realistic are current dividend forecasts? And should I buy Airtel Africa shares for my investment portfolio?

Dividend growth

City analysts expect the firm to raise last year’s payout of 5.45 US cents per share to 5.9 cents in the current 12-month period. Rewards are then predicted to rise to 6.4 cents per share in financial 2025.

Current earnings forecasts suggest that Airtel Africa will be in good shape to meet these projections, too. Dividend cover ranges between 2.9 times and 3.4 times for the next two years. A reminder that any reading above two times provides a wide margin of error.

That said, investors need to be aware of the high debts the business currently has. Investment in telecoms infrastructure is an expensive business that puts a lot of stress on the balance sheet.

Airtel had $3.5bn worth of net debt as of March, up from $2.9bn a year earlier. Capital expenditure rose 14% over the period to $748m, while the firm spent $500m to acquire spectrum licences across several of its markets.

But in better news, soaring earnings mean that the company’s ratio of net debt to adjusted earnings remains low. It came in at just 1.4 times last year despite those higher bills for capital expenses. Furthermore, cash generation remains impressive and operating free cash flow rose 10.4% in financial 2023, to $1.8bn.

Solid forecasts

On balance, Airtel Africa looks in great shape to pay the dividends analysts are expecting. But as a long-term investor I’m searching for more than big shareholder payouts this year and next. I’m searching for companies that can sustainably pay decent dividends and grow them.

One concern I have with this dividend share is the high levels of competition it faces. MTN, Vodacom, and Orange, for instance, all have significant brand power and strong balance sheets to help them expand and boost their infrastructure.

I’m also aware that the company’s earnings are dependent upon conditions in politically volatile African marketplaces. Upheaval here is another potential threat to earnings that most other FTSE 100 shares don’t face.

A top FTSE stock

Yet I still believe Airtel Africa shares are a top buy for growth and income investors. Rapid population growth and soaring disposable incomes in its territories mean investor returns could soar in the coming years.

The company’s customer base stood at 140m as of March. That’s an increase of almost 12m in just 12 months. As it expands its telecoms and mobile money operations into new territories these numbers should continue to soar.

I also like Airtel’s focus on some of Africa’s biggest and fastest-growing economies like Nigeria, Kenya, and Tanzania. This gives it a better chance to grow profits over the long term.

I’ll be looking to buy Airtel Africa shares for my own portfolio when I next have spare cash to invest.

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.

Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended Airtel Africa Plc. 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.

More on Investing Articles

artificial intelligence investing algorithms
Investing Articles

BP shares are up 7% in a week but still yield 5.4% with a P/E of just 6! Time for me to buy?

Harvey Jones thought BP shares looked unmissable value when he bought them in September. Now he's wondering whether he should…

Read more »

Investing Articles

2 UK shares for value investors to consider buying

From a buying perspective, Stephen Wright thinks this looks like a good time to consider shares in cruise company Carnival…

Read more »

Investing Articles

After crashing 80% is this former stock market darling the best share to buy today?

Harvey Jones is looking for the best shares to buy in October and thinks this former growth star could finally…

Read more »

Investing Articles

Is the Stocks and Shares ISA safe?

With public spending in need of a boost, Stocks and Shares ISAs risk being altered. Does this Foolish author think…

Read more »

Investing Articles

When I look for dividend shares to buy, should I just go for the biggest yields?

The FTSE 100 is having a strong year in 2024 so far. But there are still some great yields offered…

Read more »

Investing Articles

What on earth’s going on with the IAG share price?

The IAG share price has fallen 10% over the past week, so what exactly is happening? Dr James Fox spies…

Read more »

Young Asian man drinking coffee at home and looking at his phone
Investing Articles

Here’s why the stock market shouldn’t care about Tesla’s delivery numbers

The market reacted badly to Tesla’s quarterly deliveries coming in below expectations, causing the stock to fall. Stephen Wright thinks…

Read more »

Young Caucasian man making doubtful face at camera
Investing For Beginners

Here’s the average return from the UK’s FTSE 100 index over the last 20 years

Many British investors have money in FTSE tracker funds. But is that a smart move given the historical returns from…

Read more »