Vodafone Rumour: Dividend Bonus?

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By

Dan Radovsky

Published in Company Comment on 19 July 2012

The Sunday Times reports another huge payout may be in the offing for Vodafone.

A version of this article originally appeared on our US site, Fool.com.

WASHINGTON, DC -- Verizon Wireless, the joint venture between American telecom power Verizon (NYSE: VZ.US) and UK-based global telecom giant Vodafone (LSE: VOD), does not automatically get its monetary due from majority partner Verizon. The 55% of Verizon Wireless that Verizon controls gives the Yanks the right to dole out to the JV whatever dividend it deems appropriate -- if any at all.

Between 2000 and 2005, an annual dividend was regularly paid out to the partners. From 2005 until last January, however, there was none. Why? Because that money might be needed for capital expenditures and acquisitions, as then new Verizon CEO Lowell McAdam told the Financial Times last September. "... [W]e may end up buying spectrum and we may end up buying another company and if there are needs for that cash in Verizon Wireless, that is where it'll be generated and that is where it'll be spent ..."

Verizon did indeed make a large splash last December when it agreed to pay $3.9 billion to several cable companies for a large cache of wireless spectrum. Verizon Wireless must have been doing very well indeed in the cash generation department, because even with that deal it was still able to hand out a $10 billion dividend to the partnership, $4.5 billion going to Vodafone.

So could there be a second dividend just half a year later? That's what the Sunday Times reported would happen. The paper did not cite any sources, however.

Such a dividend would give Vodafone investors a nice windfall. Of the $4.5 billion Vodafone received in January, $3.13 billion was passed on to shareholders as a special dividend. The same payout would occur this time too if the report proves true. That would come out to around $0.63 a share in addition to Vodafone's regular dividend.

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Comments

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QuantumDealer 19 Jul 2012 , 9:33am

Did you notice the massive insider selling which occurred last week? 4-5 insiders, incl. the CEO dumped a huge amount of stock by value. With results due on Friday, it may be worth joining them and reducing some exposure before then. Not long to go now...is bad news on the way regarding performance in southern Europe?

Harry34 19 Jul 2012 , 9:57am

QuantumDealer - I think those sales were to settle tax bills relating to the granting of new shares under the long-term incentive plan. So all directors, including the CEO, now have more shares they hold. I think holders should be concerned about the drop in revenues from southern Europe, but not worried about directors selling!

sludgesifter 19 Jul 2012 , 10:14am

@Dan Radovsky: On 18 July, Vodafone had 49.247bn shares in issue. Thus the figures of $4.5bn and $3.13bn correspond to $0.0914 and $0.0636 per share respectively. It looks as though you took the latter figure and multiplied it by 10.

mcturra2000 19 Jul 2012 , 10:18am

I do own some VOD. I must say, though, that with hindsight it perhaps wasn't their best decision to have a major stake in a company where they seem not to be able to call many shots.

With regards to the director selling ... it should be pointed out that if they're selling ahead of imminent bad news, surely that would be regarded as insider dealing?

QuantumDealer 19 Jul 2012 , 10:42am

...only if it is an official 'closed period', mcturra.

breelander 20 Jul 2012 , 1:44am

@sludgesifter It looks as though you took the latter figure and multiplied it by 10.

As it says at the top, this article originally appeared on our US site. In the US Vodafone is traded as an ADR which is a package of 10 UK shares, so that figure was correct for the American readers. Your figures are correct for a UK audience.

QuantumDealer 20 Jul 2012 , 8:28am

Well spotted, Breelander. So VOD had traded as high as 187p this week...but now, following the report, it is trading down at 179p - why? No mention of special divi from Verizon Wireless and poor southern Euro trading dragging on results. Stock to fall to sub-170p coming up...

sludgesifter 20 Jul 2012 , 1:34pm

@breelander: You are right about the ADRs. However, the header for the article did not say "This article originally appeared on our US site", but rather "A version of this article originally appeared on our US site", suggesting that TMF edits articles to suit their regional sites. Also, even in the US, a distinction should be maintained between ADRs and (unbundled) shares of foreign companies.

mcturra2000 20 Jul 2012 , 7:44pm

@QuantumDealer Oops. I got that wrong.

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