Why 6% yielder Vodafone Group plc isn't the only dividend stock I'd buy today

The market wobble we've seen over the last couple of days may be disconcerting if you're new to investing.

But so far the FTSE 100 has only fallen by about 7% from the all-time high seen in mid-January. After a long run of record highs, a pull-back like this isn't surprising.

With most major global economies apparently in good health, there's no sign that corporate profits are about to collapse. So lower share prices could be good news, giving us higher dividend yields and cheaper valuations on stocks we'd like to buy.

A 6% yield I'd take

Income hunters looking for high-yield stocks will probably have considered telecoms giant Vodafone Group (LSE: VOD). It's been an unusual stock in recent years, maintaining a generous but uncovered dividend while investing heavily in network upgrades.

This approach seems to be paying off. January's trading update showed that organic service revenue rose by 1.1% to EUR10.2bn during the three months to 31 December.

It's probably fair to say that the group's future growth will be fairly slow. But demand for mobile broadband only seems likely to grow. I believe we will also see greater convergence between mobile and home broadband in the future. I expect Vodafone to become an attractive cash cow, controlling costs while squeezing more revenue from its assets.

Broker upgrades

Management expect earnings before interest, tax, depreciation and amortisation (EBITDA) to rise by about 10% this year, giving a mid-point estimate of EUR14.85bn. Free cashflow before spectrum payments is expected to "exceed EUR5bn". To put this in context, I estimate the dividend will cost about EUR4bn.

City analysts also appear to have a positive view on the telecoms heavyweight. Consensus forecasts for 2017/18 net profit have risen by EUR479m to EUR2.8bn over the last three months.

Vodafone shares offer a dividend yield 6.1% of at current levels. I believe this could be a good long-term income buy.

A better option for dividend growth?

With stocks falling across the board, today's figures from St Modwen Properties (LSE: SMP) were never going to get a favourable reception. But the firm's shares have only edged 1.5% lower, in line with the wider market.

The figures themselves seem encouraging to me. Net asset value per share rose by 4.6% to 450.9p last year, while the group's pre-tax profit climbed 5.1% to £70.3m. The dividend was increased by 4.7% to 6.28p per share, giving a yield of 1.6%.

Although this isn't a high yield, the group's measure of total return for last year seems quite attractive to me, at 6%. This represents growth in the stock's net asset value per share plus dividends paid.

A different approach

St Modwen Properties develops and invests in both commercial property and residential sites. The group's strategy is to aim for a mix of capital gains and income. Management expects to complete on £326m of commercial property this year, an increase of 38% on last year. Sales volumes of residential property are expected to rise by 25% during the year.

These shares now trade at a 14% discount to their net asset value of 450p, with the potential for further earnings growth over the coming year. I think St Modwen could be worth a closer look at current levels.

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Roland Head has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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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