Image source: Vodafone Group plc
Vodafone (LSE:VOD) shares have had a bit of a rough ride lately. Over the last five years, the stock’s tumbled by over 40%. And while dividends were maintained at nine cents between its 2019 and 2024 fiscal years (ending in March), they were ultimately slashed in half during its FY 2025.
The decision to cut dividends came as a result of management trying to steer the company back on track. Don’t forget dividend payouts are supposed to be a way of returning excess cash generation to shareholders. But new CEO Margherita Della Valle has instead prioritised debt reduction as well as reinvesting in its own network infrastructure, such as the rollout of 5G.
This decision, while unpopular among income investors, seems prudent for long-term sustainability. And it comes as a part of the group’s new restructuring programme that seeks to restore margins, re-spark growth, and further improve the health of the balance sheet.
The question now is, with the share price down significantly and early signs of turnaround progress emerging, is now a good opportunity to consider buying? And if so, how much passive income could investors earn?
Will dividends rise?
With the Vodafone stock price trading at around 74p, investors can snap up 10,000 shares with a £7,400 lump sum. Currently, the dividend per share sits at 3.81p when converted from euros. And that places the subsequent passive income stream at £381.
Of course, this assumes that another dividend cut isn’t right around the corner. Fortunately, looking at the latest analyst projections, it seems the experts think this is unlikely. Unfortunately, dividend growth doesn’t appear to be in the picture either, with the dividend per share projected to remain flat for the next four years.
That’s not entirely surprising. Vodafone’s an £18bn enterprise with roughly £45bn of debt to deal with. Both analysts and management have highlighted debt reduction as an immediate priority. And while some noteworthy progress has been made in recent years, the group’s leverage remains concerningly high.
Disposals of non-core operations have helped raise some significant capital to tackle this issue while simultaneously refocusing the business. These decisions have already helped bolster free cash flow generation to further improve financial flexibility. But with its core German market struggling to return to growth, Vodafone’s turnaround story may take a while.
The bottom line
As income stocks go, Vodafone shares don’t seem to offer very much when compared to other dividend-paying opportunities on the London Stock Exchange. However, that doesn’t mean there’s no value to be unlocked.
Suppose Della Valle’s turnaround strategy continues to hit key milestones? In that case, investor sentiment could drastically improve. And we’ve already seen the sort of gains that can be unlocked during a successful turnaround when looking at Rolls-Royce (up 680% in five years).
For now, I’m keeping Vodafone shares on my watchlist. But if its German operations get back on track and performance continues to improve in its other core markets, it might be time to consider jumping in.
