I am on the lookout for some good dividend stocks and Vodafone (LSE:VOD) is on my radar. At current levels, the Vodafone share offers a yield of over 8%. Should I add the shares to my holdings?
The Vodafone share price is heading upwards
Vodafone is one of the largest telecoms services providers in the world. It has close to 180m customers worldwide and strong brand recognition. It is a mobile phone network provider here in the UK, as well operating fibre and fintech businesses throughout Europe and Africa.
As I write, Vodafone shares are trading for 135p. At this time last year, the shares were trading at similar levels, at 132p. In recent months, however, the Vodafone share price has been on an upward trajectory. Since the beginning of November, the shares have risen over 25%, from 106p to current levels.
Risky business
There are risks to consider with Vodafone. For one, its debt levels are rather high for my liking. When looking for dividend investments, I want a company to return profits to shareholders, and not have to worry about paying down high debt levels. High debt levels could negatively affect the Vodafone share price.
Also, Vodafone operates in a sector that requires lots of capital expenditure. The maintenance of telecoms networks as well as expansion towards new technology such as 5G is costly. These costs can often be covered by profits. Growth and expansion, as well as maintenance, can lead to better future performance. This performance could then lead to further dividend payments. On the other hand, higher capital expenditure could also lead to dividend cuts. After all, dividends are never guaranteed.
A dividend stock I’d buy
At current levels, the Vodafone share price looks a good opportunity for me to make a passive income through dividend payments.
Firstly, Vodafone has a good track record of recent and historic performance. although I do understand that past performance is not a guarantee of the future. Looking back, I can see revenue has been consistently over £4.3bn for the past four years. Coming up to date, 2021 FY revenue was impressive and forecasts for FY22 in a recent half-year report were lifted even further. As well, it seems free cash flow is also increasing. A Q3 report released last month reaffirmed my belief that FY22 earnings will rise substantially higher than FY21. Revenue grew by over 4% compared to the same period last year.
As well as performance, Vodafone’s position and global reach in a vast burgeoning market fills me with confidence that growth will continue. Its diversified operations throughout the world is impressive. I am particularly buoyed by its hefty presence in emerging territories in Africa.
Overall I would add Vodafone shares to my holdings at current levels. Despite credible risks, I believe the current dividend yield and future prospects ahead make it a good dividend stock for my holdings in the coming years ahead. The Vodafone share price has not yet returned to pre-pandemic levels but as performance begins to get close to these levels, I would expect the share price to head upwards too.
Jabran Khan has no position in any shares mentioned. The Motley Fool UK has recommended Vodafone. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
