If you’ve looked at Vodafone (LSE: VOD) recently, you might have found your head spinning with all the changes in the business. The firm has disposed of its stake in US operation Verizon Wireless, made a string of recent acquisitions, and generally complicated the forward investment case by changing its own financial architecture.
It’s hard to see ahead and most will be looking forward to the firm’s full-year results, due around 20 May, to help gain greater clarity.
If in doubt, follow the cash
One thing that looks to be in the bag is Vodafone’s 5.1% dividend yield. In a management statement released on 6 February the directors said they expect full-year adjusted operating profit to come in around £5.0 billion and free cash flow at between £4.5 billion and £5.0 billion. It takes cash to pay a dividend and last year’s payout cost £4.8 billion, so cash this year should just about cover the 11p per share total dividend Vodafone expects to pay.
Vodafone’s guidance on free cash flow is a reiteration of predictions the firm made with its interim results released on 2 September. In those interims, the directors also stated that this year’s 8% rise in the final dividend is part of a post-Verizon-sale plan to grow the dividend annually.
Emerging forward growth
With Vodafone’s US growth driver, Verizon Wireless, now gone, forward earnings’ growth prospects remain unclear, and Vodafone’s forward P/E rating is running at a high-looking 21 or so. However, that doesn’t mean the firm is not pursuing growth, as the recently announced acquisitions in India, Spain and Germany demonstrate. Vodafone has real opportunity to expand the breadth of its product offering around the world due to the increasing popularity of multi-digital services.
Revenues are growing fast in the company’s emerging markets business too, which means new customers are coming on stream. So, we have the prospect of the company’s forward growth coming from expansion of the breadth and depth of its business. Meanwhile, as Vodafone investors wait for overall earnings’ growth to get in gear, the dividend looks attractive and, as far as we can tell, secure.
What now?
Vodafone’s forward dividend prospects look reliable and there is the potential for accelerated earnings’ growth down the line.