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Vodafone’s dividend is its thorn and its jewel

25/01/2019

Dividends FTSE 100

Vodafone headquarters with brand on the side
Investors buy and sell Vodafone based on the health of its dividend. With a yield of more than 9%, surely there are nice returns to be made even if the pay-out is trimmed?

Telecommunications is a service which many of us would struggle to live without. A utility which is used by roughly 63% of the world’s population. Vodafone (LON: VOD) connects almost 500m of those mobile users, many of them in the emerging markets. It makes more than €40bn a year from repeated, reliable service revenue. Maintaining sales requires little operating expenditure meaning the group is able to convert huge amounts of its profits into cash and is therefore a generous dividend payer.

Vodafone cash and profits 2014 to 2018

 2014 (£bn)2015 (£bn)2016 (€bn)2017 (€bn)2018 (€bn)
Operating Profits(3.91)1.971.323.734.30
Net Profits59.45.92(5.12)(6.08)2.78
Operating Cash Flow6.239.7210.514.213.6
Free Cash Flow4.411.091.274.065.42

Those are all qualities which would, ordinarily make Vodafone a solid investment in times of economic uncertainty. Indeed, its share price recovered quickly in the wake of the 2008 financial crisis as many investors sought its defensive, income paying qualities.

But Vodafone’s value has fallen 37% in the last year and its shares now sit at five-year lows. Why? Because people…

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