Does the 9.7% dividend yield make Vodafone shares a no-brainer buy?

The Vodafone dividend yield is one of the biggest in the FTSE 100. So shouldn’t the shares be a great buy for income investors now?

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Vodafone (LSE: VOD) shares were on a dividend yield of more than 10% not so long ago.

The share price has since picked up, and the yield has dropped to 9.7%. But it’s still one of the biggest in the FTSE 100.

Good forecasts

Forecasts show the dividend as stable until 2026. So why isn’t everyone buying to get rich on the annual payouts?

The truth is, even if folks had taken the dividends for the past five years, the share price fall would have wiped out more than half their original investment.

Debt

But if the shares are turning now, might it be time to buy? Well, investors will be troubled by Vodafone’s debt.

At FY results time, net debt stood at €33.4bn. That was an improvement on the €41.6bn pile a year previously.

But it still outstrips the company’s entire market cap of £22bn. It means that if I buy the stock, I’d be owning more debt than company. That’s scary.

Meet the new boss

I reckon Vodafone has long needed a shake-up.

To me, it’s looked bloated, complacent, and more like a disjointed collection of telephone firms than the leading global giant it’s supposed to be.

And we could be in for exactly that, with new CEO Margherita Della Valle set to grab the firm by the scruff of its neck.

She only took the top job in April 2023, moving from the CFO role. So someone with inside financial experience is in the driving seat. That has to be good, surely.

Time for change

She opened the FY statement with: “Today I am announcing my plans for Vodafone. Our performance has not been good enough. To consistently deliver, Vodafone must change.

She added: “My priorities are customers, simplicity and growth. We will simplify our organisation, cutting out complexity to regain our competitiveness. We will reallocate resources to deliver the quality service our customers expect and drive further growth from the unique position of Vodafone Business.

New broom

It seems easier for new management to upend things and make it look like they’re fixing someone else’s failings. It can turn the confessions positive, not negative, and not scare away too many shareholders.

So what will the new-look Vodafone actually be like?

Well, it won’t happen overnight, so we’ll have to wait to see some flesh on the bones of the plan.

But might this reallocating of sources mean smaller dividend handouts when the earnings to pay them aren’t there? I think it might. In fact, I really do hope so.

Time to buy?

I reckon most of the big investors think so too, and that’s why they turn up their noses at the annual 9.7%. They just don’t expect it to last. But there’s plenty of room for a cut while still paying a decent percentage.

Anyway, no, I don’t rate Vodafone a no-brainer buy for the dividend, and I think I’ve explained why. But it might still actually be a good time to buy, if Vodafone can live up to these new hopes.

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.

Alan Oscroft 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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