Only Two Days Left To Cash In On Vodafone Group's (LON:VOD) Dividend

·3 min read

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Vodafone Group Public Limited Company (LON:VOD) is about to trade ex-dividend in the next two days. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible to receive a dividend. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. This means that investors who purchase Vodafone Group's shares on or after the 1st of June will not receive the dividend, which will be paid on the 5th of August.

The company's next dividend payment will be €0.045 per share, and in the last 12 months, the company paid a total of €0.09 per share. Based on the last year's worth of payments, Vodafone Group has a trailing yield of 5.9% on the current stock price of £1.3014. If you buy this business for its dividend, you should have an idea of whether Vodafone Group's dividend is reliable and sustainable. So we need to investigate whether Vodafone Group can afford its dividend, and if the dividend could grow.

See our latest analysis for Vodafone Group

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Vodafone Group paid out 125% of profit in the past year, which we think is typically not sustainable unless there are mitigating characteristics such as unusually strong cash flow or a large cash balance. A useful secondary check can be to evaluate whether Vodafone Group generated enough free cash flow to afford its dividend. Thankfully its dividend payments took up just 27% of the free cash flow it generated, which is a comfortable payout ratio.

It's good to see that while Vodafone Group's dividends were not covered by profits, at least they are affordable from a cash perspective. Still, if the company repeatedly paid a dividend greater than its profits, we'd be concerned. Extraordinarily few companies are capable of persistently paying a dividend that is greater than their profits.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

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historic-dividend

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. For this reason, we're glad to see Vodafone Group's earnings per share have risen 20% per annum over the last five years.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Vodafone Group's dividend payments per share have declined at 6.7% per year on average over the past 10 years, which is uninspiring. Vodafone Group is a rare case where dividends have been decreasing at the same time as earnings per share have been improving. It's unusual to see, and could point to unstable conditions in the core business, or more rarely an intensified focus on reinvesting profits.

To Sum It Up

Has Vodafone Group got what it takes to maintain its dividend payments? Earnings per share have been rising nicely although, even though its cashflow payout ratio is low, we question why Vodafone Group is paying out so much of its profit. All things considered, we are not particularly enthused about Vodafone Group from a dividend perspective.

With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. Every company has risks, and we've spotted 2 warning signs for Vodafone Group you should know about.

If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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