There are many ways to earn a profit in the stock market (and an equal amount of ways to make a loss!). A favourite method among investors to earn passive income is by owning dividend shares.

With inflation and interest rates on the rise, the stock market is becoming increasingly volatile. For this reason, I am on the hunt for high-yielding, low-risk dividend stocks I can add to my portfolio.

By investing as little as £100 a month into these stocks, and reinvesting the dividends, I believe I could be making well over £10k a year by the time I retire. Here’s how I plan to do it.

The method

I am currently 21, so I would be looking to pay £100 a month for the next 30 years. A spare £100 may be hard to find, but for context, skipping a £3 morning coffee each day pretty much covers it!

The key here is to keep up my payments and reinvest my dividends. By reinvesting my dividends, I can benefit from compound interest. For instance, starting at £0, and by investing £100 a month for 30 years, I could end up with well over £400,000, assuming a 13% annual total return (dividends plus company growth).

Assuming the above growth rate, I would reach my £10k target by year 18.

The stocks

I want to be earning passive income, which means I need to pick high-yielding dividend stocks. The best companies to pick here are slow-growth, stalwart industry giants. These companies are the most likely to turn over regular dividends and keep producing cash flows. A small amount of industry research and checking historic dividend payments should help me here.

A method I would plan to use in order to minimise risk would be to diversify my portfolio. This means picking high-dividend stocks across separate industries. Therefore, if one sector underperforms, its losses may be made up for by growth in another sector.

With the macroeconomic outlook looking increasingly uncertain for the next few years, this could be an essential method to employ.

The risks

While this sounds great on paper, it is not a foolproof method. There is no way of predicting a stock’s future dividend payments or annual returns (if there was, we would all be rich!).

Events like the Covid-19 pandemic force companies to skip dividends and even stop paying them for long periods of time. For this reason, it might take me longer than 18 years to reach my goal of £10k in passive income.

However, by year 30, I am confident that I will be able to hit that goal, even if I have to make some minor changes to my dividend portfolio along the way.

The post How I’m using £100 a month to try to earn £10k a year in passive income appeared first on The Motley Fool UK.

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Dylan Hood has no position in any of the shares mentioned. The Motley Fool UK has recommended Vodafone. 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.

Director dealings are essentially insider transactions for shares between directors and the companies they work for. These dealings are always made public, and are often considered a good indicator of a company’s future prospects. However, they don’t get nearly as much attention as other company news due to their complex nature. Nonetheless, here I’m breaking down this week’s biggest director dealings from three FTSE firms.

Vodafone

Vodafone (LSE:VOD) is a British multinational telecommunications company. It predominantly operates services in Asia, Africa, Europe, and Oceania. The company runs at least some form of operations in over 150 countries.

Following lacklustre numbers from its Q1 trading update, the share price dropped by 5%. It has stayed there since. Despite that though, it’s a sign of confidence when a high-ranking director purchases shares. And this week, Vodafone’s Chairman decided to reinvest his dividends into buying more Vodafone shares.

• Name: Jean-François van Boxmeer
• Position of director: Chairman
• Nature of transaction: Dividend shares
• Date of transaction: 10 August 2022
• Amount bought: 9,975 @ £1.21
• Total value: £12,069.75

Deliveroo

Deliveroo (LSE: ROO) is a British online food delivery company. It operates in over 200 locations across the UK, and is the second-biggest food delivery platform in the country. It also operates internationally with operations in France, Singapore, Australia, and many more.

In this week’s transaction, a director exercised his option to redeem stock compensation. Following this, he opted to sell approximately half of the shares received to cover tax liabilities. That being said, it’s worth noting that this is a monthly occurrence from the company’s CFO. As such, these actions shouldn’t impact investor sentiment surrounding the stock. It’s worth pointing out, however, that the sale of these shares dilute shareholders’ value. This is because there are now more Deliveroo shares floating on the market.

• Name: Adam Miller
• Position of director: Chief Financial Officer
• Nature of transaction: Award shares
• Date of transaction: 15 August 2022
• Amount vested: 83,400 @ £0.96
• Total value: £80,247.48

• Name: Adam Miller
• Position of director: Chief Financial Officer
• Nature of transaction: Sales of shares to cover tax liabilities
• Date of transaction: 15 August 2022
• Amount sold: 40,402 @ £0.95
• Total value: £38,381.90

FirstGroup

FirstGroup (LSE: FGP) is a British multi-national transport group. The FTSE 250 firm is the leading transport operator in the UK and North America. It is widely known for being a provider of public transport, especially buses in the UK.

Rather surprisingly, its shares have managed to outperform the wider UK market index this year. But after the share price took an 11% hit last week, a couple of large director dealings were carried out. The first involves a non-executive director purchasing a substantial number of shares. But what really caught my eye were the conditional share awards that could be awarded to FirstGroup’s CEO and CFO. This should shore up investors’ confidence in the stock, as the group’s management will have to perform and meet investors’ expectations in order for these award shares to vest.

• Name: Sally Cabrini
• Position of director: Non-Executive Director
• Nature of transaction: Purchase of shares
• Date of transaction: 17 August 2022
• Amount vested: 10,000 @ £1.15
• Total value: £11,482

• Name: Graham Sutherland
• Position of director: Chief Executive Officer
• Nature of transaction: Award shares
• Date of transaction: 18 August 2022
• Amount vested: 972,590 @ Nil
• Total value: N/A

• Name: Ryan Mangold
• Position of director: Chief Financial Officer
• Nature of transaction: Award shares
• Date of transaction: 18 August 2022
• Amount vested: 1,003,226 @ Nil
• Total value: N/A

Types of Shares

To provide context, there are a few types of shares that can be purchased by directors. Some directors opt to purchase shares via the open market. Having said that, directors also have the option to purchase and receive shares via a share incentive plan (SIP).

A SIP is an employee plan for companies within the UK to flexibly award shares to employees. Publicly listed companies normally exercise this option because it’s tax-efficient for both the employer and its employees.

In this week’s set of director dealings, a few types of SIPs were exercised. For starters, Vodafone’s Chairman opted to purchase more Vodafone shares from the dividends he received from his current shares.

On the other hand, Deliveroo’s CFO decided to exercise the option of redeeming his restricted stock units. These are a form of award shares which allow for directors to redeem shares at a later date, as either as part of their salary or based on meeting performance obligations.

FirstGroup’s CEO and CFO were awarded shares as well, but these will only be vested once performance targets are met. In this case, more than 1.5m shares are up for grabs between the two directors under the operator’s long-term incentive plan (LTIP). The LTIP award will normally vest on the third anniversary of the date of award, subject to satisfaction of performance conditions and continued employment. The award is also subject to an additional holding period of two years from the date on which the award vests.

The post Director dealings: Vodafone, Deliveroo, FirstGroup appeared first on The Motley Fool UK.

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John Choong has no position in any of the shares mentioned. The Motley Fool UK has recommended Deliveroo Holdings Plc and Vodafone. 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.

Director dealings are essentially insider transactions for shares between directors and the companies they work for. These dealings are always made public, and are often considered a good indicator of a company’s future prospects. However, they don’t get nearly as much attention as other company news due to their complex nature. Nonetheless, here I’m breaking down this week’s biggest director dealings from three FTSE firms.

Rolls-Royce

Rolls-Royce (LSE: RR) a British multinational aerospace and defence holdings company. It is one of the world’s largest maker of aircraft engines, and operates in four different segments. These include civil aerospace, power systems, defence, and new markets. This week, four director dealings were carried out, albeit in small volumes.

• Name: Lee Hsien Yang
• Position of director: Non-Executive Director
• Nature of transaction: Purchase of shares (Share purchase plan)
• Date of transaction: 7 July 2022
• Amount bought: 1,184 @ £0.83
• Total value: £950.59

• Name: Wendy Mars
• Position of director: Non-Executive Director
• Nature of transaction: Purchase of shares (Share purchase plan)
• Date of transaction: 7 July 2022
• Amount bought: 2,198 @ £0.83
• Total value: £1,820.38

• Name: Sarah Armstrong
• Position of director: Chief People Officer
• Nature of transaction: Purchase of shares (Share purchase plan)
• Date of transaction: 7 July 2022
• Amount bought: 147 @ £1.02
• Total value: £149.91

• Name: Rob Watson
• Position of director: President (Rolls-Royce Electrical)
• Nature of transaction: Purchase of shares (Share purchase plan)
• Date of transaction: 7 July 2022
• Amount bought: 147 @ £1.02
• Total value: £149.91

Lloyds

Lloyds (LSE: LLOY) is one of Britain’s biggest financial institutions. Its brands include Lloyds itself, Halifax, and Bank of Scotland. It earns the bulk of its revenue from mortgage loans. A large number of director dealings occurred with Lloyds shares this week.

• Name: Joanna Harris
• Position of director: Interim Group Director
• Nature of transaction: Partnership shares and matching shares
• Date of transaction: 11 July 2022
• Amount bought: 296 @ £0.42
• Amount received: 106 @ nil
• Total value: £124.91

• Name: Antonio Lorenzo
• Position of director: Chief Executive Officer (Scottish Widows)
• Nature of transaction: Partnership shares and matching shares
• Date of transaction: 11 July 2022
• Amount bought: 355 @ £0.42
• Amount received: 106 @ nil
• Total value: £149.81

• Name: Janet Pope
• Position of director: Chief of Staff and Group Director of Sustainable Business
• Nature of transaction: Partnership shares and matching shares
• Date of transaction: 11 July 2022
• Amount bought: 296 @ £0.42
• Amount received: 106 @ nil
• Total value: £124.91

• Name: Stephen Shelley
• Position of director: Chief Risk Officer
• Nature of transaction: Partnership shares and matching shares
• Date of transaction: 11 July 2022
• Amount bought: 355 @ £0.42
• Amount received: 106 @ nil
• Total value: £149.81

• Name: Andrew Walton
• Position of director: Group Corporate Affairs Director
• Nature of transaction: Partnership shares and matching shares
• Date of transaction: 11 July 2022
• Amount bought: 71 @ £0.42
• Amount received: 105 @ nil
• Total value: £29.96

Vodafone

Vodafone (LSE: VOD) is is a British multinational telecommunications company. It predominantly operates services in Asia, Africa, Europe, and Oceania. A significant director exercised their options to purchase Vodafone shares this week.

• Name: Nick Read
• Position of director: Chief Executive Officer
• Nature of transaction: Purchase of shares (Vodafone Sharesave Plan)
• Date of transaction: 11 July 2022
• Amount bought: 22,352 @ £1.01
• Total value: £22,499.52

Types of shares in a SIP

To provide context, there are a few types of shares within a company’s share incentive plan (SIP). A SIP is an employee plan for companies within the UK to flexibly award equity to employees. Publicly listed companies normally exercise this option because it’s tax-efficient for both the employer and its employees.

In this week’s dealings, directors at Rolls-Royce opted to purchase shares under a share purchase plan. This is a form of capital raising by Rolls-Royce which offers shareholders the opportunity to apply for new, additional shares.

As for Lloyds, the director dealings occurred with partnership shares and matching shares. Partnership shares give employees the opportunity to buy shares via deductions from their salary, before tax deductions. But where partnership shares are offered, the company can also offer matching shares, as was the case. This can range up to a maximum ratio of two free matching shares per partnership share purchased. Nonetheless, it’s important to note that matching shares must normally be held in a trust for at least three years, and held for five years in order to receive a full tax relief. However, these shares may be forfeited if an employee withdraws their partnership shares from the trust.

Finally, in the case of Nick Read, the CEO exercised his options to purchase shares under the Vodafone Share Save Plan. These options are exercisable five years from the savings contract start date, provided that the required monthly savings were made.

The post Director dealings: Rolls-Royce, Lloyds, Vodafone appeared first on The Motley Fool UK.

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John Choong has no position in any of the shares mentioned. The Motley Fool UK has recommended Lloyds Banking Group and Vodafone. 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.

Inflation hit a new high of 6.2% in February. Vodafone (LSE: VOD) has a 6% dividend yield and is outperforming the wider UK market index with an 8% year-to-date gain. Today, I will be assessing whether this FTSE 100 stock has a place in my portfolio.

Paying dividends

High-dividend paying companies are infamous for compensating for their underperformance with large payouts. This is often seen in industries that have high levels of uncertainty or headwinds, such as metal commodities and tobacco.

However, Vodafone has managed to buck the trend so far this year. The British telecommunications company pays one of the UK’s highest dividends. In fact, it is among the top 25% of dividend payers in the UK. The payout rounds up to approximately €0.09 or £0.07 per share.

Furthermore, the Vodafone share price has also outperformed the FTSE 100 by a rather solid 7% so far this year. The surge in its share price came after its better-than-expected Q3 results. For that reason, Vodafone does look like a promising passive income stock, at least for the short term.

Dial up growth

Nonetheless, as a long-term investor, I have a strong interest in a company’s future prospects. I always look for companies that can sustain a continued level of earnings growth, even if they don’t pay dividends.

Although revenue growth from Vodafone’s most recent quarterly trading update was positive, a 3.1% annual growth rate does not entice me. With that being said, there are also positives. Most notably, revenue growth was impressive in Egypt (18.5%) and Turkey (22%). However, these two countries together only contribute 9% of the group’s total service revenue. Also, Italy (-1.3%) and Spain (-1.6%), which each contribute 20% of total service revenue, saw declines.

While I have no doubt that Vodafone has a path to recovery in a post-pandemic world, just how much it can recover by remains a question. The company’s annual earnings have been extremely volatile, sliding in and out of profitability. Revenue has been on a decline since 2015. As such, I think Vodafone’s growth prospects are limited, and so are its future dividends.

Top up your balance

Vodafone’s dividend of 6% is not well covered by its earnings. This all brings me to raise the most worrying factor about Vodafone — its balance sheet. With an extremely high level of debt and declining cash levels, the British telecommunications company does not seem to have a bright future ahead. Moreover, with interest rates continuing to rise, Vodafone is going to find it difficult to pay off all that debt without much growth. In addition, its dividend payments have fallen over the past 10 years.

Even if I was a dividend investor, I would be skeptical of receiving a healthy level of dividend payments from Vodafone for the medium to long term. I am staying clear of this FTSE 100 stock and won’t be buying it for my portfolio anytime soon.

The post This FTSE 100 stock could earn me passive income with a 6% dividend yield appeared first on The Motley Fool UK.

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John Choong has no position in any of the shares mentioned at the time of writing. The Motley Fool UK has recommended Vodafone. 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.

FTSE 100 telecommunications giant Vodafone (LSE: VOD) was the most popular buy among Hargreaves Lansdown clients last week. Should I be filling my boots too? Here’s my take.

Why is Vodafone so popular?

Perhaps the most prominent reason for Vodafone’s sudden popularity is that it’s well-placed to benefit from the current rotation into value stocks. Interestingly, pharma giant GlaxoSmithKline, power provider National Grid and Vodafone’s peer BT have also been in big demand.

With the possibility of interest rates rising faster than expected, I fully appreciate why some would seek to ride this (temporary) wave.

Let’s not forget that Vodafone is a favourite among dividend investors as well. A yield of 5.4% is clearly an awful lot better than I’d get from a typical cash savings account. It’s also very attractive, considering the rising cost of living. 

Can this momentum last?

As a Foolish investor, I’m not interested in owning stocks for only a few days before dumping them. I’ll leave that to the traders who are happy to trust their ability to time the market. I know this is something I simply can’t do. So, I’m asking whether Vodafone stock is good enough to earn a spot in my portfolio for years.

In some ways, I think it is. Due to the nature of what it does, Vodafone possesses defensive characteristics that many companies would envy. It’s the largest mobile and fixed network operator in Europe and owns a highly valuable brand. It also possesses the continent’s fastest-growing 5G network.

That’s encouraging given the global 5G services market is expected to achieve a compound annual growth rate of 46% between 2021 and 2028. 

One might also argue that we’re only at the beginning of this stock’s recovery. Vodafone’s share price may be close to its 52-week high, but it’s still not even back to pre-pandemic levels. 

Costly FTSE 100 business

Having said this, I’m also of the opinion that there are far better businesses to buy than Vodafone. 

Considering just how costly it can be to keep its infrastructure in good working order (and update it when required), returns on capital are unsurprisingly low. That’s problematic, considering the best stocks to own over the long term tend to be those that bring in a lot of cash relative to the investment required. Margins are also pretty slim in this line of work. 

Then there’s the price I’m being asked to pay. Sure, a valuation of 16 times earnings isn’t unreasonable. But nor is it screamingly cheap, considering the amount of debt carried by the company.

Despite highlighting its income credentials earlier, it’s important to note that Vodafone has a consistently inconsistent track record when it comes to hiking its annual dividend. Personally, I’d much rather cash returns were modest but growing every year. This is more indicative of a company in rude health.

My verdict

Having endured an awful 2021, recent activity suggests Vodafone could be in for a better 2022. I can most definitely see the appeal of buying now if I were concerned about the short-term global economic outlook.

As someone with time on my side however, I’m sticking to snapping up quality growth stocks and funds while they’re on sale. Just like Warren Buffett suggests.

The post Investors are piling into this FTSE 100 stock. Should I buy too? appeared first on The Motley Fool UK.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended GlaxoSmithKline, Hargreaves Lansdown, and Vodafone. 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.

There are some FTSE 100 stocks that regularly feature on the list of most popular buys on investment platform Hargreaves Lansdown. Battered engineer Rolls-Royce and under-pressure International Consolidated Airlines often fight it out for the top spot, for example. Lloyds Bank is also one of the most traded shares on the London market. Last week however, it was the turn of another top-tier member.

That company was telecommunications giant Vodafone (LSE: VOD).

Vodafone shares: what’s the draw?

Vodafone shares might be attracting buyers for a couple of reasons. For one, the blue-chip looks pretty reasonably valued, at least relative to other stocks in the FTSE 100. At last Friday’s close, the £33bn-cap was trading at 14 times forecast earnings. 

A potential second reason is the dividend stream on offer. Analysts currently have the company returning the equivalent of 7.66p per share for this financial year (ending 31 March). That gives a giant yield of 6.4%. For perspective, there are only eight companies in the FTSE 100 offering more. Those cash payouts look even more tempting when you consider that even the best instant access Cash ISA offers a paltry 0.65% in interest.

On top of this, Vodafone is clearly making progress at an operational level. Its tower division — Vantage Towers — has now been spun off and listed. More recently, the company reported a better-than-expected 3.3% increase in service revenue over Q1. 

Lagging the FTSE 100 

As popular as Vodafone is at the moment, there are a few things I’d need to be aware of if I were to queue for the shares. The first of these relates to how likely it is that those dividend payouts may need to be reduced. 

Right now, that huge yield is covered only 1.1 times by profits. Ideally, I’d be looking for this ratio to be higher (twice-covered would be ideal). In addition to this, Vodafone’s net debt has ballooned in recent years. That could prove problematic if/when interest rates rise. 

There’s also the lacklustre share price performance to consider. Vodafone’s stock is up only 2% in value over the last year. The FTSE 100 index has fared better — rising 18%.

The long-term picture isn’t encouraging either. Since 2016, Vodafone shares have halved in value! Meanwhile, the FTSE 100 is up 5% and the S&P 500 index has more than doubled. 

All this highlights an issue that investors face when deciding what to buy. I don’t just need to question whether the rewards are worth the risk. I also need to think about what gains I may be giving up by not being invested elsewhere.

On this note, it’s interesting that Vodafone didn’t feature on the list of most popular sells at Hargreaves Lansdown last week. Perhaps many of those buying now are in for the long term? Over such as short period of market activity, it’s impossible to know.

Stay diversified 

Despite its recent popularity, I suspect it’ll take time for the Vodafone share price to really get going. For this reason, I’d only consider joining other investors and buying this FTSE 100 stock today if I were looking to build a portfolio focused solely on generating income.

Considering the potential threats to the dividend, I’d also make sure I was sufficiently diversified to ensure that any damage from a cut, should one come, is limited.

The post This FTSE 100 dividend stock was last week’s most popular buy appeared first on The Motley Fool UK.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended Hargreaves Lansdown and Lloyds Banking Group. 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.

Notwithstanding the potential for any macro issues to upset the markets, today’s trading update leads me to think recent momentum should continue over 2020.

“Good progress”

Group revenue rose 6.8% to €11.8bn over the three months to the end of 2019 thanks to a stellar performance in what remains a “challenging” European market (up 10.1% to a little under €9bn). That said, revenue from elsewhere declined 2.7% to €2.5bn.

Based on this performance, Vodafone chose to reiterate its guidance of adjusted earnings of €14.8bn-€15bn, and free cash flow of around €5.4bn for the full year.

Away from the numbers, the company also reported making “good progress” on its strategic priorities over the period, including the appointment of a senior management team for its soon-to-be-listed towers business (European TowerCo). CEO Nick Read hinted that shares of this spin-off should hit the market in “early 2021.“

Solid ‘hold’

Vodafone’s shares were up slightly this morning, suggesting investors were satisfied with what the company had managed to achieve. Then again, most aren’t invested for capital gains — it’s the dividends they’re after.

Assuming it returns the 7.9p per share currently penciled in by analysts, Vodafone yields 5.2% at its current price — far more than the 1.3% you’d receive from even the highest-paying Cash ISA.

Taking this, today’s update, and the fact that the £40bn-cap is finally trying to tackle its serious debt burden by selling assets into account, I think the stock now looks a solid ‘hold’ for those looking to generate a second income stream from their portfolio. 

Holy smokes!

The fairly muted reaction to Vodafone’s trading update was in complete contrast to that afforded to tobacco giant (and fellow top-tier member) Imperial Brands (LSE: IMB). Its shares were down 8% this morning following news that the US Food and Drug Administration’s decision to ban certain vaping-related products would likely lead full-year revenue “to be at a similar level” to that achieved in 2019.

In addition to impacting sales growth, Imperial said the ban would force a write-down of the company’s flavoured inventory, resulting in a £45m hit on adjusted operating profit over the first half of its financial year.  Adjusted earnings per share are predicted to come in “slightly lower than last year.” 

Value trap?

The belief that vaping would offset declining tobacco sales was one reason why I was previously bullish on Imperial. Unfortunately, recent developments have forced me to re-evaluate the investment case.

Given the real possibility of further regulations being imposed in light of research showing these alternative products might be just as harmful as traditional smoking, I wouldn’t be surprised if the shares continued to fall.

Before this morning, Imperial’s stock was already trading on just 7 times forecast earnings and offering a seriously-high 11% dividend yield. Considering the headwinds it faces, I’d be staggered if cash payouts weren’t significantly reduced in the near future, even though the extent to which they are covered by profits is still slightly higher than over at Vodafone.

In my opinion, there are far less risky opportunities to generate income from stocks. 

The post Forget the Cash ISA. I’d hold FTSE 100 dividend stock Vodafone instead appeared first on The Motley Fool UK.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended Imperial Brands. 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.

As Edward quite rightly stated back then, please remember that the numbers stated below are subject to change, particularly as we could see quite a bit of movement in the market before and after the election. 

BP

FY2020 dividend forecast: 41.2 cents (32p)
FY2020 prospective yield: 6.41%

Oil behemoth BP (LSE: BP) hasn’t had the best time of late, giving away the gains it had made in the first few months of 2019 over the second half of the year due to a falling oil price. That said, a lower valuation means the dividend yield now stands at 6.41% — more than the FTSE 100 average and slightly higher than Royal Dutch Shell. This payout is likely to be covered by earnings almost 1.4 times. That’s a little lower than I would normally like, but certainly better than it once was.

As always, a lot depends on things BP can’t control. Assuming 2020 brings the black gold bulls back from the shadows, however, now might be as good a time as any to invest.  

Vodafone

FY2021 dividend forecast: 9.4 cents (8.1p)
FY2021 prospective yield: 5.17%

There was a time when I would avoid shares in Vodafone (LSE: VOD) like the plague thanks to its dogged refusal to reduce its unaffordable dividend. Now that this has finally happened, I’m prepared to be a little more welcoming. Considering that its share price has climbed 19% since the announcement back in May, it seems I’m not alone. 

That’s not to say that I think income investors should necessarily pile into the stock. Vodafone’s proposed 9.4 cents per share cash return in FY2021 (beginning 1 April 2020) will still only be covered just 1.1 times by expected profits. Moreover, the company still carries an extraordinary amount of debt on its balance sheet — the reduction of which will depend on its ability to offload its European mobile mast business and continue taking contracts from rivals (the recent capture of Virgin Media from BT is an example). 

2019 could go down as the year that Vodafone’s fortunes began to turn, but I’d still proceed with caution. 

Astrazeneca

FY2020 dividend forecast: 275 cents (214p)
FY2020 prospective yield: 2.89%

Pharmaceutical powerhouse Astrazeneca (LSE: AZN) has been one of the index’s standout performers in 2019 with the share price a little over 25% higher today than where it was at the start of the year.

In contrast to the situation at BP, this has resulted in Astra’s yield moving lower. The firm is expected to return around 214p per share in FY2020 which equates to a yield of just 2.89%. Positively, dividend cover has improved over recent years and next year’s cash payout should be covered around 1.56 times by profits.

My only real concern with Astrazeneca right now is that the stock looks expensive relative to the general market and to peer GlaxoSmithKline (at 27 vs 14 times forecast earnings). Should sterling rise on December 13 following a perceived breakthrough on Brexit, it’s possible the former’s share price could come off the boil (since Astra makes most of its money overseas). As such, anyone considering the stock may wish to put off their purchase for now.

The post 2020 dividend forecasts: BP, Vodafone and Astrazeneca appeared first on The Motley Fool UK.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended GlaxoSmithKline. The Motley Fool UK has recommended AstraZeneca. 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.

I’ve written about Vodafone a number of times since, suggesting in May, when the shares were trading at 124p, that investors could double their money. With the shares now at 162p, and Tracsis’s at 622.5p (up 3% today, following the release of its annual results), it seems like a good time to review.

I’ll look at Tracsis first, before turning to my headline question: “Do I still think the Vodafone share price could double your money?”

Very buyable

Tracsis describes itself as “a leading provider of software, hardware, and services for the rail, traffic data, and wider transport industries.” One of the things I like about the business is that I see strong structural drivers for growth in the areas it specialises in, due to rapid urbanisation, rising demand for intelligent transport solutions, and enhanced safety.

It’s no surprise, then, that the company today reported a very healthy 24% increase in revenue to £49.2m for its financial year ended 31 July. This came from a combination of organic growth of 9% and growth from acquisitions of 15%.

Operating profit before exceptional items increased 13% to £6.7m, earnings per share (EPS) rose 7% to 28.25p, and the board lifted the massively covered dividend 13% to 1.8p. Impressively, Tracsis has no borrowings, and ended the period with a cash balance of £24.1m, up from £22.3m, despite spending £6.8m on three acquisitions during the year.

The table below puts the current valuation of the company in the context of the previous years when I covered its results:

I’ve said for the last two years the shares look very buyable to me, and I say it again this year, with the cash-adjusted price-to-earnings (P/E) ratio at 19.1.

Mixed news

Vodafone’s half-year results for the six months ended 30 September, released earlier this week, contained mixed news. The headline was a statutory loss of €1.9b. Management said this “primarily reflects losses in relation to Vodafone Idea post an adverse judgement against the industry by the Supreme Court in India.”

Whatever the outcome of the company’s active engagement with the government to “seek financial relief for Vodafone Idea” – and indeed it’s future in the country – I don’t think it’ll ultimately derail the prospects of what is an internationally diversified telecoms behemoth.

The positives in the results included organic revenue growth of 0.7% in Q2 (a strong rebound from a 0.2% decline in Q1), and an upgrading of management’s full-year guidance on earnings before interest, tax, depreciation, and amortisation (EBITDA). The company now anticipates EBITDA of €14.8b to €15.0b (previously €13.8b to €14.2b).

Plenty of upside

In contrast to Tracsis, Vodafone carries hefty net debt (€48.1b at the period end), and this year’s forecast EPS of 8.3p (giving a P/E of 19.5) only thinly covers an anticipated dividend of 7.8p (4.8% yield).

I don’t see investors doubling their money in short order from the current share price. However, with City analysts forecasting EPS growth in excess of 20% next financial year, I believe there’s still plenty of upside for the shares, and I’d be happy to buy them at today’s level.

The post Do I still think the Vodafone share price could double your money? appeared first on The Motley Fool UK.

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G A Chester has no position in any of the shares mentioned. The Motley Fool UK has recommended Tracsis. 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.

Investors seem to be returning to the company following its €18.4bn acquisition of telecoms assets across Europe from peer Liberty Global. Following the deal, Vodafone is now one of the industry’s largest on the continent, and is rapidly closing in on Deutsche Telekom, Europe’s largest telecoms group.

The Liberty deal substantially increased Vodafone’s exposure to Germany, which the company calls “the engine of Europe.” The group is now Germany’s largest pay-tv operator, with 14m subscribers, making it the second biggest pay-tv provider in Europe behind Sky.

A European giant 

This size and scale gives Vodafone a tremendous advantage over the rest of the market. According to City analysts, before the deal, Vodafone had a presence in most European markets, but it didn’t have enough scale to compete effectively with the rest of the industry.

Now Vodafone has bulked up its German operations, analysts believe the company has acquired the size and scale to dominate the European telecommunications market by using Germany as a launchpad.

Vodafone is also deploying groundbreaking technologies in the country. For example, at its Düsseldorf headquarters, workers can now control robots at a factory 80 km away using 5G mobile technology. The group has also signed a flying car deal with Chinese technology company EHang in Germany.

According to analysts, all of these efforts mean Vodafone will return to growth in its 2021 financial year. After several years of stagnating or declining earnings, analysts are forecasting earnings growth of 23% in Vodafone’s next fiscal year, as the earnings benefits from Liberty Global start to flow through to the bottom line.

A big risk 

However, the one area where the company still needs to make substantial progress is reducing its borrowing. As I’ve pointed out, Vodafone’s borrowings are on track to hit a staggering €55bn, excluding any asset sales. There are asset sales planned, but progress has been slow on this front.

This high level of borrowing could mean Vodafone might have to cut its dividend once again. So that’s something income investors should be aware of. Still, from a growth perspective, Vodafone’s outlook appears bright. And that’s why I believe there’s still time to pile into the Vodafone share price after its recent performance.

Capital growth 

If you’re only interested in capital growth, and not worried about the company’s dividend sustainability, then Vodafone’s shares could be for you. As earnings growth returns, I expect investors to re-rate the stock higher, based on its brighter prospects. 

Even though the stock is up 25% in just a few months, from a cash-flow perspective, it still looks cheap. Shares in the company are dealing at a price to free cash flow ratio of just 10.2, compared to the telecoms industry average of 14.6. 

On top of this attractive multiple, the stock also supports a market-beating dividend yield of 5.1%. 

The post Is it time to pile into the Vodafone share price? appeared first on The Motley Fool UK.

More reading

• 2 UK ‘value stocks’ to approach with extreme caution
• £5,000 invested in Vodafone shares 5 years ago is now worth…
• £2k invested in Vodafone shares after the last full-year results would currently be worth…
• What £15,000 invested in Vodafone shares 1 year ago is worth today…

Rupert Hargreaves owns no share 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.