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There are many attractive dividend yields around the world. FTSE 100 IndexOne of the largest telecommunications powers. Vodafone (LSE:VOD), offering a massive 10.5%.
Let's dig deeper to help me decide if I should buy some stocks for juicy returns.
What's happening?
Vodafone shares are currently trading at 74p, down from 72p at this time last year. A modest 2% increase is hardly surprising, in my view.
There has been a lot going on in the background that has caused the rollercoaster ride shown above. Some noteworthy events include the dividend cut from fiscal 2025, as well as challenging trading environments in established markets such as Germany and here at home in the UK. On the other hand, share buybacks and progress in growth markets have been some bright spots.
In Vodafone's most recent business update, it provided me with a snapshot of the status quo of the business.
Organic service revenues grew by 5.4% overall compared to the same period last year. This was mainly due to success in growing markets such as Africa and Turkey. Margin levels remained stable at around 30%. These highlights show me some resilience.
Vodafone Business, another growth area, performed well, reporting service revenue growth of just under 3%.
The bad news, however, was that service revenues in established markets fell by 1.5% in Germany and remained stagnant here in the UK. The other issue for me was the amount of debt the company continues to deal with. This could impact returns in the future even more than the recent announcement of cuts to come.
My investment case
From a bearish perspective, the fact that debt levels are hurting Vodafone's balance sheet is worrying. Furthermore, the dividend is already planned to be cut.
On top of this, performance in its established markets, where it makes most of its money, is also a concern as it appears to be stagnating.
Finally, the stock looks a bit pricey at first glance, considering a price-to-earnings ratio of 18.
Turning to the other side of the coin, the growing markets and potential opportunities here are exciting. Recent updates bear this out, including the latest one. The propensity for earnings and returns to increase in these emerging territories tells me that returns could return to levels seen previously. In addition, another positive sign is the share buyback plan that the company recently announced.
Finally, it is difficult to ignore Vodafone’s key position in the global telecommunications market. With its extensive presence, track record and technical expertise, it is difficult to dismiss the company’s ability to deliver consistent value to shareholders.
What I'm doing now
Overall, I think Vodafone shares are worth considering for my investments. However, I am concerned about the dividend cut and debt levels. On the contrary, the growth opportunities excite me.
From an income perspective, I think there are better stocks out there for me. For that reason, I will keep Vodafone shares on my watch list for now, but I may be tempted to review my position sooner rather than later.
