10%+ yield! Is Vodafone the best dividend stock on the FTSE 100?

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I’ve come to find that Vodafone Group (LSE:VOD) might be the best dividend stock for my retirement portfolio after rigorously digging through the FTSE 100. Though there are some obvious problems with the company, the stock is currently trading at the same valuation it did back in the late 90s. Could investors have been too harsh and oversold this dividend machine?

Consistent dividends

Currently, Vodafone boasts a 10.4% yield, significantly beating the 3.83% dividend yield of the communications sector. This massive increase in yield wasn’t because it increased dividends, however. Rather, it’s because the stock has fallen almost 10% this year and over 50% in the past five years. At the same time, management has been keen to maintain a 9p dividend per share since 2019. 

Are dividends unsustainable?

But it begs the question, are these high dividends sustainable? Many investors don’t think so, and that’s why it’s trading at a price-to-sales ratio of just 0.51x, compared to its 10-year average of 1.17x. And they wouldn’t be completely wrong. Revenue has slowly been decreasing since 2016 and free cash flow declined by 3.9% in FY 2023. This is due to the rising cost of living across Europe, as revenue decreased in many regions including Germany, Spain and Italy.

Competition in the telecommunication sector is also fierce, and it has been a bloodbath for companies to provide the lowest cost to frugal customers. 

However, there are also some positives for Vodafone. For one, the company is planning a merger with Three. This would lead to a combined market share of over 35% and become the biggest mobile phone provider in the UK. Already, revenue grew around 5% quarter over quarter in the UK, solidifying Vodafone’s position. Not to mention, the company is also laying off around 10% of its staff to improve profitability.

Finally, Vodafone has enjoyed substantial growth in developing countries. For example, it is one of the largest providers in Africa and provides services to over 170 million people on the continent. It has almost 30 years of experience in Africa with significant infrastructure already set up. As mobile adoption continues to accelerate in Africa, Vodafone’s first-mover advantage on the continent looks likely to generate substantial income for investors down the line. 


For me, Vodafone looks like a buy for its consistent dividends and potential in Africa. Though it faces some short-term hurdles due to macro conditions, it’s making good moves to counteract the loss of growth.

Its cheap valuation gives what Warren Buffett calls a “margin of safety,” and gives room for error if the buy thesis is wrong. Overall, I’m considering putting Vodafone in my long-term portfolio for its steady stream of dividends and to bet on its consolidation of the African market.