How many Vodafone shares must I buy to quit work and live purely off the dividends?

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Vodafone (LSE: VOD) shares are impossible to ignore because they offer one of the highest yields of the entire FTSE 100. Today, they pay a mind-boggling 9.66% and they’re dirt-cheap, too, trading at 8.1 times earnings.

I can’t imagine I’m the only investor who dreams of hanging up their boots and living purely off the dividends generated by their portfolio. I’d stand more chance of success by choosing stocks with a notably high yield, such as Vodafone Group.

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I’m a man of simple needs, and once the kids have left home and my mortgage is cleared, I reckon I could get by on £30,000 a year. Especially since I’ll get the State Pension on top one day, which should add another £10,000. But let’s leave that to one side for now.

Living on one stock pick

Vodafone’s euro-priced dividend per share of €0.09 translates as roughly 7.82p a share. That means I’d need to buy a whopping 383,631 shares to hit my £30k a year income target, which seems rather a lot to me.

At today’s price of 78.78p per share, I’d need to invest a thumping £302,225. Which would involve selling every SIPP and ISA holding and throwing every penny into Vodafone.

No financial adviser on earth would advise doing that. Well, no honest adviser. Diversification is the key to happy long-term investing. It’s impossible to get income of almost 10% a year without taking some risks, and the truth is that Vodafone has plenty.

First, there is the share price. After soaring to 548p in March during the boom, it crashed to around 155p three years later. And here we are, more than 20 years on, and the shares trade at roughly half that value. The slide continues – at pace – with the stock crashing another 37.75% in the last year alone.

I’m looking for income rather than growth, but that performance is too lousy to ignore and casts doubt on the dividend. When I checked the 2022 dividend per share, I noticed that it has been frozen at €0.09 for at least five years. One of the charms of dividends is that they offer the prospect of a rising income over time. Not Vodafone.

Earlier this month, new CEO Margherita Della Valle attacked her own charge as “not good enough”, while announcing a €1bn cost-cutting plan. Few would disagree with her assessment, even if the company has been at the mercy of soaring energy bills and the cost-of-living crisis.

Cash flows are falling, too

Vodafone is still forecast to deliver cash flows of €3.3bn this year, but that’s well down on last year’s €4.8bn. Given the upcoming upheaval, I think the dividend outlook is precarious. Della Valle could cut shareholder payouts in half and the stock would still yield an acceptable 5% a year. That would play havoc with my retirement plans, though.

There’s no way I would bet my financial comfort on just one single stock. If I absolutely had to do it, I wouldn’t start with Vodafone. I wouldn’t invest £5,000 in the troubled telecoms giant, to be frank. There are safer and sounder income stocks out there.

The post How many Vodafone shares must I buy to quit work and live purely off the dividends? appeared first on The Motley Fool UK.

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Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has recommended Vodafone Group Public. 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.

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