Lloyds Banking Group plc vs Vodafone Group plc: which is the best dividend stock?

Going by broker forecasts, both Lloyds Banking Group (LSE: LLOY) and Vodafone Group (LSE: VOD) make for rich pickings for dividend chasers.

For 2016 Lloyds is anticipated to reward shareholders with a 4.4p-per-share dividend, a figure that yields an impressive 6%. And this readout moves to an exceptional 7% for next year thanks to a predicted 5.1p payment.

Meanwhile, Vodafone’s anticipated dividends of 11.5p and 11.9p per share for the years to March 2017 and 2018, respectively, yield a brilliant 4.9% and 5.1%.

Pros and cons

While yields at both firms smash the FTSE 100 forward average of 3.5% by some distance, Lloyds’ numbers for this year and next clearly beat those of Vodafone.

But which can be considered the ‘safer’ dividend stock?

Well, Lloyds certainly has a strong capital pile to fall back on. The company’s CET1 ratio stood at an impressive 13% as of March, one of the best across the banking sector. And this number looks set to head higher as the firm’s Simplification cost-cutting scheme continues.

On top of this, Lloyds’ focus on the stable UK retail sector gives it better earnings visibility than many of its peers, making the stock an appealing pick for income seekers.

That’s not to say that Lloyds is without its fair share of risk, of course, and the potential impact of a leave vote at this month’s European Union referendum could play havoc with its future earnings — and subsequently dividend — performance.

And Lloyds also faces an escalation in PPI-related claims ahead of a touted 2018 deadline. The company has already had to stash away a gargantuan £16bn to cover the cost of the mis-selling scandal.

Cash machine

A critical quality of Vodafone has been its ability to generate shedloads of cash, enabling the telecoms titan to keep dividends heading higher in spite of recent earnings turbulence. Indeed, free cash flow clocked in at a mighty £1bn for the year to March 2016.

And the conclusion of Vodafone’s £19bn Project Spring organic investment programme will provide the balance sheet with a further boost as capital expenditure dips dramatically looking ahead.

Investors should also be buoyed by a steady improvement in Vodafone’s European marketplaces. Organic service revenues here grew 0.5% during January-March, the first quarterly advance since 2010. Meanwhile an 8.1% sales rise in the Asia, the Middle East and Africa (or AMAP) region underlined the breakneck demand being witnessed in exciting emerging markets.

Like Lloyds, Vodafone could see sales slip should the UK tumble out of the EU, although the company’s pan-global exposure should insulate it from the worst of these woes.

What will be of more concern is that Vodafone still operates in what is becoming an increasingly-competitive sector across all of its geographical marketplaces.

So which is best?

There are clearly a number of things to consider when tallying up both Lloyds and Vodafone’s near-term dividend prospects.

And while the banking star is expected to dole out the juicier dividends in the near term, I believe Vodafone’s massive multinational exposure could make it a stronger payout choice further out should earnings — as expected — lift off.

Regardless, I believe both Lloyds and Vodafone are terrific dividend stocks at the present time.

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Royston Wild has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.