almost 4 years ago • 2 mins
Telecoms giant Vodafone gave investors a welcome boost on Tuesday as it kept its dividend steady, bucking the recent trend of companies cutting payouts. One index tracking US dividend “aristocrats”, meanwhile, has exhibited particularly high-class performance of late… 🎩
British-headquartered Vodafone, the world’s second-largest telecoms company, controversially cut its dividend by 40% last year. Investors smarting from recently retracted profit-sharing at big rival BTmay therefore have expected something similar here. So they were delighted when Vodafone announced that, thanks to surging data demand, the company had not only met its increased expectations for revenue and profit growth but had decided to keep its dividend intact too.
Such “defensive” stocks with reliably recurring revenue – and therefore (at least in theory) predictable dividends – may now be back in vogue among investors. Many obsess over tracking down stocks with the highest dividend “yields” relative to their prices. But comparing the S&P 500’s High Dividend indexto its Dividend Aristocrats basket – those big US companies which have unfailingly raised payouts for each of the past 25 years, if only by a little each time – actually shows the aristocrats providing significantly better returns 🧐
As the coronavirus throws the sustainability of companies’ dividends into sharp relief, the Aristocrats index – available to purchase through exchange-traded funds – may offer safety as well as strength. Not only are these companies larger than their high-paying rivals, but profits are much greater relative to payouts. The ability to slash big share buyback programs (expected to get cut in half through 2020) also offers financial flexibility in troubled times.
While Vodafone, as a UK company – and one which, after all, did cut its dividend a year ago – is no Aristocrat itself, relieved investors nevertheless sent its share price up 8% on Tuesday. While declining to provide full future earnings guidance, the company predicted it would generate enough cash to maintain the same payout through 2021 💪
As investment manager Oaktree reminded us this week, nothing is certain. Nevertheless, Finimizers looking for more tips on spotting sustainable dividends may want to browse our Media, Gaming, and Telecoms Pack…
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