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As Vodafone returns to underlying growth, is the 6% dividend yield safer?

first_img I would like to receive emails from you about product information and offers from The Fool and its business partners. Each of these emails will provide a link to unsubscribe from future emails. More information about how The Fool collects, stores, and handles personal data is available in its Privacy Statement. Kevin Godbold | Wednesday, 3rd February, 2021 | More on: VOD Enter Your Email Address Image source: Getty Images. Click here to claim your copy now — and we’ll tell you the name of this Top US Share… free of charge! Our 6 ‘Best Buys Now’ Shares Simply click below to discover how you can take advantage of this. “This Stock Could Be Like Buying Amazon in 1997”center_img As Vodafone returns to underlying growth, is the 6% dividend yield safer? Renowned stock-picker Mark Rogers and his analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we’re offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our ‘no quibbles’ 30-day subscription fee refund guarantee. I’m sure you’ll agree that’s quite the statement from Motley Fool Co-Founder Tom Gardner.But since our US analyst team first recommended shares in this unique tech stock back in 2016, the value has soared.What’s more, we firmly believe there’s still plenty of upside in its future. In fact, even throughout the current coronavirus crisis, its performance has been beating Wall St expectations.And right now, we’re giving you a chance to discover exactly what has got our analysts all fired up about this niche industry phenomenon, in our FREE special report, A Top US Share From The Motley Fool. FTSE 100 telecoms giant Vodafone (LSE: VOD) released its third-quarter trading update today. The company declared the business has returned to service revenue growth of 0.4% year on year. That beats a decline of 0.4% suffered in the second quarter.The report hails this outcome as a “resilient” trading performance driven by “continued commercial momentum,” despite ongoing lockdowns.5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…And if you click here we’ll show you something that could be key to unlocking 5G’s full potential…However, service revenue is an alternative measure designed to highlight the underlying growth in the business. And overall, total revenue declined by 0.3% in the period.Vodafone shares are up todayThe share price looks buoyant today. And at just above 131p, the dividend yield is near 6%. But the directors rebased the shareholder payment lower in 2019, which isn’t an ideal scenario for income-seeking investors. On top of that, Vodafone’s shares trade more than 40% below their level three years ago. So shareholders have suffered declining income and capital losses over the period.One of Vodafone’s attractions is its vast infrastructure network. Competitors can’t replicate the set-up easily. But maintaining and developing the infrastructure requires vast sums of capital investment. And Vodafone must invest constantly to maintain the competitive advantage of the business.One consequence is the big debt-load carried by the firm. And the servicing of debt interest tends to compete with the servicing of shareholder dividend payments. However, the company is reducing its ongoing costs by sharing its networks with other firms for a fee. And there’s also a strategy of investing in infrastructure via joint ventures.A positive outlookChief executive Nick Read said in today’s report the recent good trading makes him “confident” in the full-year outlook. The company expects adjusted EBITDA to be between €14.4bn and €14.6bn and free cash flow to be “at least” €5bn. That anticipated cash flow performance is consistent with the five-year record. And it confirms that steady flows of incoming cash is one of Vodafone’s big strengths.Read also mentioned the upcoming Initial Public Offering (IPO) of Vantage Towers (Vodafone’s radio tower business) in early 2021. The flotation is set to raise money for Vodafone. And Read said it will now include the firm’s 50% shareholding in its UK towers joint venture with Telefonica.Meanwhile, City analysts following Vodafone expect overall earnings to increase by just over 30% for the trading year to March 2022. That will raise the cover for the anticipated dividend to just over one. I like to see higher cover from earnings. But, in the case of Vodafone, free cash flow has historically covered the shareholder payment well. Nevertheless, cover from free cash didn’t prevent the recent cut in the dividend.On balance, I think the outlook for ongoing shareholder dividend payments improved a little today. But Vodafone isn’t the only high-yielding investment I’d consider in the FTSE 100 right now. For example, I’d also run the calculator over companies such as GlaxoSmithKline, British American Tobacco and National Grid. Kevin Godbold has no position in any share mentioned. The Motley Fool UK has recommended GlaxoSmithKline. 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. See all posts by Kevin Godboldlast_img read more