Can Vodafone (LON:VOD) maintain its dividend payment?

When it comes to UK-listed dividend payers, telecommunications giant Vodafone (LON:VOD) is royalty. The group, which splits its operations between Europe and Africa, Middle East and Asia Pacific (AMAP), has not cut its dividend since it was first introduced in 1990 - that's nearly three decades. What's more, Vodafone is estimated to account for £1 of every £14 paid by listed companies over the past decade.

It might come as a surprise, then, to see the group's shares paying out a rolling dividend yield of 8.78%. This is usually the kind of yield that signals investors believe a dividend cut is coming.

One of the quickest ways to check dividend safety is to look at the dividend cover (earnings per share divided by dividend per share). Dividend cover is the inverse of the dividend payout ratio. Dividend cover of two times or above is strong. Anything below one and a half times - as is the case for Vodafone (LON:VOD) - should be stirring us to investigate in more detail.

Calculating the dividend cover for Vodafone (LON:VOD) 

A low level of dividend cover means that a small decline in earnings could consign your dividend payment to the scrap heap. It happens all the time. With that in mind, let’s take a look at Vodafone’s (LON:VOD) dividend cover.

We can get all the information we need to see if Vodafone has an adequate level of dividend cover from the group’s StockReport. The group’s trailing twelve-month earnings per share is -3.3c and its trailing twelve-month dividend per share is 15c, meaning the group currently has a negative dividend cover. 

Even when we use forecast FY19 figures, we get 9c of earnings and a 15c dividend. This gives a forecast dividend cover of just 0.62 times. This indicates that Vodafone is currently struggling to maintain its dividend payments. If it manages to successfully turnaround its operations and return to profitability over the medium term, however, then today's share price might represent an attractive entry point.

Income investing: what you need to know

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