Vodafone To Receive £2.4 Billion Dividend Windfall

Maynard Paton

By

Maynard Paton

Published in Company Comment on 13 November 2012

Vodafone (LSE: VOD) issues mixed interim results.

The shares of Vodafone (LSE: VOD) (NYSE: VOD.US) slipped 6p, or 4%, to 161p in early London trade this morning after the telecoms group issued mixed interim results and said it would spend a forthcoming dividend from Verizon Wireless on a share buyback.

The FTSE 100 (UKX) member admitted its first-half performance had been "slightly below" its expectations, with group revenues down 7% to £21.8 billion and adjusted profits up 2% to £6.2 billion.

Vittorio Calao, Vodafone's chief executive, said:

"We have continued to make progress on our strategic priorities over the last six months, with good growth in data and emerging markets in particular. In the short-term, however, our results reflect tougher market conditions, mainly in Southern Europe."

Today's figures included a £6 billion write-off relating to the group's Spanish and Italian operations.

The statement also revealed the forthcoming receipt of a £2.4 billion dividend from Verizon Wireless. However, Vodafone added that it would use £1.5 billion from the proceeds on a share buyback programme.

The decision to spend the upcoming Verizon payment on buybacks contrasts with a previous decision to distribute an earlier windfall. When Vodafone received a £2.9 billion payout from its 45% stake in the US mobile operator during January, some £2 billion was distributed to ordinary shareholders through a special dividend.

Today's Vodafone results indicated full-year profits would be a bit higher than expected at close to £11.9 billion and free cash flow would be a bit lower than expected at about £5.3 billion.

The interim dividend was lifted 7.2% to 3.27p per share and Vodafone confirmed its target of lifting the current-year payout by at least 7%. That should mean the full-year dividend will be 10.2p per share, which would support a potential 6.3% yield for today's buyers.

Right now, Vodafone is just one of a number of FTSE large-caps that offers a dividend income well ahead of what you can expect to receive from a standard savings account.

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> Maynard does not own any share mentioned in this article.

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Comments

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johandesilva 13 Nov 2012 , 9:51am

*Potential* upside next year amongst safe stocks looks excellent for VOD with Goldman Sachs posted a target of £2.27 in September that is a 27.64% upside from the current price plus the dividend.

Jebedee 13 Nov 2012 , 10:04am

Share buyback? Is this not the company using the Verizon dividend to bolster the falling share price due to the initial write down on Spain and Italy? My view is that this should be distributed as a dividend to the shareholders.

As for an upside, I am not sure I see where an upside is to come from.

SevenPillars 13 Nov 2012 , 10:29am

johan

Goldman Sachs September target of next year means nothing in the light of today's result. Vodafone has been a dog of a share price performer. Market sentiment is solidly against it right now. It's chart performance is typical falling knife.

Wonder how many city brokers will come out with a revised lower target price in the next few days? Usually that results in a lower share price.

Still, £11.9billion of profit not enough for the city.

vinchainsaw 13 Nov 2012 , 10:32am

Record profits in South Africa and they're looking to again expand in Africa, which is potentially the biggest market in the world due to lack of landline infrastructure. MTN, the other South African operator is making a killing in Africa.

As for the buyback, could that the reason for the fall today? As in, investors were hoping for a special dividend, but VOD has changed tack and now shareholders wont be getting it?

This is anyway a file and forget share so I'm not worried.

tg12 13 Nov 2012 , 10:58am

I see this as a good buying opportunity. Big picture wise, I ask myself

a.) Is the mobile industry going to grow or shrink over the next 10 years? I believe it will grow strongly- we do more and more over mobile nowdays, and with the advent of 4G, a lot of city dwellers might look to get rid of their broadband altogether, and just use mobile.

b.) Will Vodafone benefit from this- again I believe yes.

Most of these problems are short term (e.g. decline in Southern Europe) and I'd expect these revenues to stabilize over the next couple of years.

Verizon Wireless is still chucking off loads of money, and that should continue to support the dividend.

SevenPillars 13 Nov 2012 , 11:24am

What exactly is this £6 billion impairment charge and is it a one off?

Vodafone says;

The Group incurred a total impairment charge of £5.9 billion in relation to the carrying value of goodwill of its operations in Spain and Italy as a result of challenging market conditions and adverse movements in discount rates.

Seems like a lot of goodwill to be suddenly wrong about.

jackdaww 13 Nov 2012 , 11:25am

just topped up again.

vod is my biggest holding.

buyback make sense at this low price.

richjfool 13 Nov 2012 , 11:46am

So Maynard, are you buying it?

I can see the downside in terms of its near term Southern European prospects, but as a dividend investor the yield, along with the company's longer term prospects and my LTBH perspective/strategy hold good for me.

Agreed buybacks at the lower SP make sense for the company.

richjfool 13 Nov 2012 , 12:08pm

Note the dividend is being increased:

Dividend + 3.27p = +7.2%

johandesilva 13 Nov 2012 , 12:44pm

SevenPillars I do not see anything in today's results for brokers to downgrade ratings. Strong Buy.

jonasdad 13 Nov 2012 , 1:03pm

Just topped up again, think the sell off is overdone. As a LTBH investor happy to take the income and buy on dips.Vod continues to throw off loads of cash and the impairment charge doesn't affect cash.not sure about the buy back though, rather have another special dividend.

ProfessorMarcus 13 Nov 2012 , 2:34pm

I'm going to buy in when VOD falls to 100p. ;-)

Mari11ion 13 Nov 2012 , 2:40pm

If I had the cash as a Dividend I'd probably just buy more VOD shares with it anyway, so better to let VOD buy them themselves (more tax efficient).

vinchainsaw 13 Nov 2012 , 3:24pm

mari11ion,

Agreed. Buybacks appeal to a different set of investors; mostly not those on the MF. Its nice seeing my cash being topped up, but no issues for me. There's a dividend anyways and it has been increased.
Next year the pot will be shared by less investors... about 4% less unless my math (or fag packet) is letting me down.

jackdaww 13 Nov 2012 , 8:02pm

profm

vod was at 100 in march2003 and oct2008.

tfl102 13 Nov 2012 , 10:44pm

I have watched VOD for 2 years and I have seen the share price going up and down and I think if one is a long term investor for income in a growth share, it sound odd, it is a no brainer at the price of about 160. The biggest opportunity for growth for VOD is in the mobile payment technology and VOD will be a very big player in this in the coming years.I have not seen any comment on this. Strong buying opportunity, buy and forget and collect!

Fabius1 14 Nov 2012 , 1:18am


Moneyweek's Tim Bennett (Moneyweek) uses Vodafone as an example of his assessment of an income share in his video link below.

http://www.moneyweek.com/investment-advice/how-to-invest/video-tutorials/the-fastest-way-to-value-an-income-stock-61000

F1

johandesilva 14 Nov 2012 , 9:04am

...in the light of results nothing has changed:

14 Nov Citigroup 210.00
14 Nov Goldman Sachs 224.00
14 Nov Espirito Santo Execution Noble 210.00
14 Nov JP Morgan Cazenove 220.00
14 Nov Deutsche Bank 225.00
14 Nov Nomura Neutral 190.00
14 Nov UBS Buy 200.00
14 Nov Morgan Stanley 210.00
13 Nov Vodafone Group PLC 235.00

etc...
http://capita.moneyam.com/broker-views/VOD/Vodafone-Group

rigbyf 14 Nov 2012 , 9:44am

When does vodafone go ex dividend?
Thank you.

ANuvver 14 Nov 2012 , 10:56am

rigby:
21st November.

Classic income play. If I weren't holding enough already, I'd be buying.

ANuvver 14 Nov 2012 , 10:58am

further to fabius:

Tim Bennett's tutorials at MW are exceptional, and I'd recommend them to anyone. Even if you think you know the ropes, there's great value to be had from the simple clarity of his approach.

SevenPillars 14 Nov 2012 , 12:57pm

Johan

You left off Socgen who strangely have a target price of 100p.

Of the others, 5 have slightly lowered their target price so it isn't a case of nothing changed. They seem to be giving Vodafone the benefit of doubt at this stage. Next year's results may be the important ones as any further disappointment may see the downgrades come in. Increasing the dividend helps Vodafone's case as a cut here would probably see a downgrade.

160p does seem cheap for the company, but the longer term charts look horrible. It is in a downtrend and market sentiment is against it now. Could get cheaper.

kyith 15 Nov 2012 , 11:57pm

i think most here acknowledges that this dip is an opportunity. but would like more discussion on how safe is this yield at around 5.5% - 6%

the debt levels look ok, but at the worst case for southern europe and other strength declining, what is the likely hood they will cut dividend.

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