The FTSE 100’s stuffed with dividend shares and revenue alternatives. In actual fact, 99 of the 100 firms inside the UK’s flagship index provide traders passive revenue. And the 5 largest yields proper now are coming from Phoenix Group Holdings (10.3%), M&G (9.2%), Authorized & Basic Group (8.8%), Taylor Wimpey (8.4) and Vodafone (LSE:VOD) at 7.7%.

Mixed, this basket of 5 dividend shares gives a mean yield of 8.9% – virtually triple the FTSE 100’s present stage of payout. And with publicity to the monetary providers, insurance coverage, development and telecommunications industries, it seems to be a reasonably diversified mini-income portfolio.

So is now the time to perhaps snap up these dividend shares whereas the yields are nonetheless excessive?

Yield vs danger

As thrilling as incomes a near-9% dividend yield sounds, this excessive stage of payout’s normally connected with appreciable danger. In spite of everything, a dead-cert dividend is usually jumped upon by traders virtually instantly. And the excessive quantity of shopping for exercise pushes up the inventory price and drags down the yield. So when yields are nearing double-digit territory, that normally means traders are being cautious of a looming menace.

Digging deeper

Let’s zoom in on Vodafone. Over the past 12 trailing months, traders have earned round 5.68p in dividends per share after changing from euros. In comparison with the present share price of 74.4p, that offers a yield of seven.7%.

And when trying on the price-to-earnings ratio, Vodafone shares don’t precisely look like very costly, buying and selling at a 9.2 earnings a number of. So why aren’t extra traders leaping on board this chance?

The reply lies in Germany. The corporate’s core market is proving problematic, with many shoppers switching to cheaper opponents as Vodafone continues to hike costs. Pairing this with a current regulation change that forestalls landlords from bundling cable TV into tenancy fees, income from Germany has shrunk by 6.4% in its third quarter resulted in December.

That’s greater than the 6.2% loss within the earlier quarter. And even when eradicating the affect of this regulation change, gross sales are nonetheless heading within the unsuitable route at an accelerating tempo.

Contemplating Germany’s chargeable for a 3rd of Vodafone’s high line, it is a major problem. Administration’s really warned of an incoming impairment cost to its German enterprise within the upcoming Could outcomes.

What does this imply for dividends?

Moreover the disappointing leads to Germany, Vodafone’s enterprise has some shiny spots. The UK market seems to be again on monitor with its upcoming merger with Three, which is predicted to spark contemporary progress within the enterprise. In the meantime, its M-Pesa fintech cellular funds platform continues to ship sturdy progress within the African markets.

Sadly, this progress seems inadequate to keep up shareholder payouts. And administration’s subsequently slashed dividends in half. As a substitute of paying €0.45 per share each six months, Vodafone shares will now solely provide €0.225 per share. And when transformed into kilos on the present alternate price, the yield isn’t 7.7% however reasonably 5.1%.

All issues thought-about, administration appears to be taking the required steps to proper the ship. However for now, Vodafone shares shall be staying on my watchlist. The opposite shares on this record even have their challenges. Earlier than investing, you should definitely do loads of research to determine whether or not the potential reward’s well worth the danger.