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This FTSE 100 dividend share yields 9%-plus. A brilliant bargain or investor trap?

When it comes to Vodafone Group (LSE: VOD) and dividends, I don’t care what the number crunchers have to say. It’s an income share that I’ve long championed and one which I remain über-optimistic about.

As I type, City analysts are expecting Vodafone to cut the annual dividend in the current fiscal year to 13.7 euro cents per share, down from the 15.07 cents reward for the 12 months to March 2019, which the company has previously pledged (last year’s results are slated for Tuesday, May 14).

Two things to bear in mind, though. This is not the first time broker consensus has suggested a dividend reduction is inevitable, an idea Vodafone has thumbed its nose at by regularly raising shareholder payouts instead.

And secondly, even if the red-liveried carrier were to reduce dividends to touted levels, investors can still latch onto a jumbo 9.1% yield. The FTSE 100 broader average sits at what is, by comparison, a ‘meagre’ 4.5%.

Cash machine

So why am I confident Vodafone will have the mettle to (at a minimum) meet the predicted payment for fiscal 2020, even though it actually falls short of expected earnings and net debt continues to boom (up 6% year-on-year as of September, to $32.1bn)?

Put simply, the Footsie firm’s a colossal cash creator and this gives it the strength to keep raising yearly payouts even as it aggressively pursues growth through acquisitions and vast organic investment, programmes which are tipped to intensify as 5G appears on the horizon.

Astonishingly, in spite of the impact of falling revenues of late, free cash flow at Vodafone continues to impress. In the autumn, the firm upgraded its estimates (before spectrum investment costs) for fiscal 2019 to €5.4bn, from €5.2bn previously, a result that would match the cash flows of the prior year.

The greatest dividend dip buy?

Expectations that Vodafone will paper back the annual dividend have weighed on the share price and over the past year alone it’s down around 33%. I reckon this makes the telecoms titan one of the hottest dip buys on the Footsie right now though.

Historically, Vodafone has always commanded a healthy premium and an earnings multiple well above a forward P/E ratio of 15 times, the level that’s widely considered as an indication of decent value. Those aforementioned dividend concerns, though, mean that the business now carries a rating of just 14.4 times, and yet its long-term earnings outlook remains compelling.

In fiscal 2020 and 2021 the blue-chip’s expected to report profits growth of 17% and 16% respectively, driven by a healthy return to revenues expansion that will help take the sting out of those heavy capital expenditure and M&A bills and keep the balance sheet healthy.

And why wouldn’t the Square Mile be so chipper? Sure, sales growth in Vodafone’s European and emerging market regions may have both slowed in the past year. But because of the low data penetration rates in its African and Middle Eastern territories, and the steps it has taken to improve its services and boost cross-selling in its core continental market, Vodafone’s bottom line looks in great shape to rebound sooner rather than later. That’s why I’m tipping it to continue thriving as citizens across the planet get ever-more connected.

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