Here’s the Vodafone dividend forecast for 2023 and 2024

Vodafone (LSE: VOD) is a popular income stock. This is because the company has a history of paying large dividends. Will telecom companies continue to reward investors with big payouts? You can find Vodafone tariffs for 2023 and 2024.

Dividend forecast

Before looking at the latest earnings estimates, there are a few things to note.

First, Vodafone’s financial year ends on March 31. Thus, the year ending March 31, 2023 is FY2023 and the year ending March 31, 2024 is FY2024.

Second, companies report their finances (and declare dividends) in euros. So, we need to convert the expected dividend back into pounds to get the result.

As for the dividend forecast, FY2023 analysts expect Vodafone to pay nine euro cents per share (paying the same as in the last four financial years). This is a result of 8.7% of the current share price.

For FY2024, analysts expect a slightly lower payout of 8.7 euro cents per share. That translates to a yield of around 8.4% at the current share price.

So, at first glance, Vodafone stock looks like it could be a cash cow, even if a small cut is forecast for FY2024. In the current economic environment, an 8%+ yield is certainly attractive.

Is Vodafone pay fixed?

However, when investing for dividends, it is important to check the dividend coverage ratio. This is the ratio of earnings to dividends and tells us about the sustainability of the company’s payouts.

For Vodafone, the ratio is only 1.16 for FY2023 and 1.14 for FY2024. The ratio is very low (indicating that the dividend may be at greater risk of deduction). Generally, a ratio of two or above is desirable.

Buying stocks for dividends when coverage is low is quite risky, in my mind. Because the yield may be lower than expected.

Dividend red flag

Digging deeper, a low dividend coverage ratio isn’t the only red flag here.

Another is the fact that Vodafone has paid nine cents per share over the last four financial years. In other words, there is no dividend growth in the entire current year. Often, this pattern is observed before cutting.

An additional red flag is the amount of debt on Vodafone’s balance sheet. As of September 30, net debt stood at €46bn. Interest payments on this debt can affect the dividends that will be paid.

Worth buying for income?

Given the low dividend coverage rate, lack of dividend growth, and amount of debt on the balance sheet, this is not a stock I would personally buy. In my mind, the risk of a dividend cut is too great.

All things considered, I think there are safer dividend stocks for investors to buy right now.