Dividend Investors: Don't Be Too Quick To Buy Vodacom Group Limited (JSE:VOD) For Its Upcoming Dividend
Vodacom Group Limited (JSE:VOD) is about to trade ex-dividend in the next four days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Thus, you can purchase Vodacom Group's shares before the 29th of November in order to receive the dividend, which the company will pay on the 4th of December.
The company's next dividend payment will be R3.05 per share. Last year, in total, the company distributed R6.70 to shareholders. Calculating the last year's worth of payments shows that Vodacom Group has a trailing yield of 6.3% on the current share price of ZAR105.54. If you buy this business for its dividend, you should have an idea of whether Vodacom Group's dividend is reliable and sustainable. So we need to investigate whether Vodacom Group can afford its dividend, and if the dividend could grow.
Check out our latest analysis for Vodacom Group
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Vodacom Group paid out 69% of its earnings to investors last year, a normal payout level for most businesses. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Thankfully its dividend payments took up just 48% of the free cash flow it generated, which is a comfortable payout ratio.
It's positive to see that Vodacom Group's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. If earnings fall far enough, the company could be forced to cut its dividend. That explains why we're not overly excited about Vodacom Group's flat earnings over the past five years. We'd take that over an earnings decline any day, but in the long run, the best dividend stocks all grow their earnings per share.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Vodacom Group's dividend payments per share have declined at 1.6% per year on average over the past 10 years, which is uninspiring.
The Bottom Line
Is Vodacom Group worth buying for its dividend? The payout ratios appear reasonably conservative, which implies the dividend may be somewhat sustainable. Still, with earnings basically flat, Vodacom Group doesn't stand out from a dividend perspective. To summarise, Vodacom Group looks okay on this analysis, although it doesn't appear a stand-out opportunity.
So if you want to do more digging on Vodacom Group, you'll find it worthwhile knowing the risks that this stock faces. To help with this, we've discovered 3 warning signs for Vodacom Group that you should be aware of before investing in their shares.
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.
