Up, down or flat? The Vodafone dividend forecast has got me thinking

As a shareholder in the telecoms giant, Christopher Ruane has been considering the Vodafone dividend forecast. Here’s his current thinking.

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Image source: Vodafone Group plc

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As a shareholder in telecoms giant Vodafone (LSE: VOD), I have an interest in what happens to its dividend. After all, the current yield of 10.2% is unusually high for a FTSE 100 share. That could be a red flag – or a bargain buying opportunity. Could the Vodafone dividend forecast help me decide whether to hang on to the shares?

Going up?

First let’s consider the prospects of a dividend increase by the firm.

The company has not given any indication to shareholders to expect a bigger payout. Indeed, since 2019 when it reduced the size of its dividend, Vodafone has held it steady.

Asset sales over the past year have helped raise cash. But I expect that will more likely be used to pay down some of the firm’s large debt pile rather increasing its dividend.

A decline in adjusted free cash flows last year does not bode well for the prospect of spending more money on shareholder dividends.

In my Vodafone dividend forecast, I see the prospect of an increase in the near future as low.

Going down?

So what about another cut?

There are several reasons why I think this could make sense for the business. It would ease pressure on cash flows. The dividend is costly. Vodafone spent €2.5bn on its equity dividends last year.

Its business performance overall feels uneven and the dividend is a financial burden. Although basic earnings per share grew strongly last year, adjusted basic earnings per share and cash inflow from operating activities both fell.

The double-digit yield suggests to me that the City is already pencilling in the risk of a dividend cut. But depending on its severity, any such cut could still leave a decent yield standing.

Set against that, a convenient opportunity to cut the payout would have been when the current chief executive took office this year. So far that has not happened. With net debt falling markedly last year, the company’s financial situation looks to be heading in a positive direction.

So I see the chance of a cut as medium.

Holding steady

In fact, the Vodafone dividend forecast that I think is most likely to happen is that the payout is held steady.

The company can afford its current payout. Indeed last year, it spent €1.9bn on share buybacks in addition to the dividend.

Not cutting the dividend could help inspire confidence in investors. I think that might be positive for the flagging share price, which has tumbled by an alarming 49% over the past five years.

My own Vodafone dividend forecast expects a continuation of what is happening right now. I therefore think the attractive yield could potentially be here to stay.

I have bought the shares for my portfolio this year. I plan to continue holding them in the hope of receiving a substantial stream of dividends.

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.

C Ruane has positions in Vodafone Group Public. 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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