Just as I thought this summer could not get any better…
…along comes an amazing £54bn stock-market jackpot to reward a savvy band of Foolish investors.
I mean, I was just packing away the sun lounger after counting my rising dividends…
…as well as recalling the splendid 30-degree sunshine and all that sensational sporting success…
…when Vodafone confirmed it would sell its Verizon Wireless stake for $130bn.
Nothing short of a mind-boggling payday
To me at least, this deal tops off a superb summer for thousands of intelligent income investors…
…whose foresight to back a top-quality yielder such as Vodafone has resulted in nothing short of a mind-boggling payday.
In a second, I’ll look at the sale to Verizon Communications in a bit more detail. But first, I must put this staggering £54bn hand-out into perspective.
I mean, £54bn is equivalent to:
- The market values of Aviva, Marks & Spencer, J Sainsbury, ITV, Standard Life, British Land and Whitbread combined;
- Two-thirds of the total dividends expected to be paid by quoted companies during 2013;
- £14bn more than the government’s annual corporation tax income;
- 11 times the government’s annual stamp duty receipts;
- 6 London Olympic games;
- 633 Gareth Bales, and;
- 1,384,615,385 subscriptions to Motley Fool Share Advisor at the current introductory price of just £39 for the first 6 months…
Speaking of Motley Fool Share Advisor, let me remind you of what my expert colleague Charly Travers had to say about Vodafone last year…
He’s smiling in the picture because he foresaw all the upside
You probably recall me writing about Charly once or twice before.
You see, he’s one of the Fool’s smartest stock-pickers and works on Share Advisor, our best-of-the-best share-tipping service.
Anyway, just a few weeks ago, I told you how Charly had given this verdict to ordinary members of Share Advisor last year:
“We think Vodafone’s 45% ownership stake in Verizon Wireless is quite valuable, and being underappreciated by the market.”
And as we all now know, it was a superb opinion.
When Charly looked at Vodafone last year, the group’s market cap was £87bn…
…while the $130bn just agreed for the Verizon Wireless stake is equivalent to about £84bn.
Clearly Verizon Wireless was very underappreciated by the market!
I see no obvious reason for patient income seekers to sell now
Anyway, back to the deal. Here are some basics of that £54bn:
- It’s equivalent to 112p per Vodafone share;
- It will be paid via a mixture of cash and shares in Verizon Communications;
- If you hold fewer than 50,000 Vodafone shares, you can sell your Verizon shares through a special dealing facility, and;
- Shareholders will get their money sometime during the first quarter of next year.
Importantly for all you shrewd Vodafone investors, I believe the telecoms share should remain a decent income play after the sale is complete.
Indeed, Vodafone expects to lift its current-year dividend by 8% to 11p per share and “intends to grow it annually thereafter”.
So with the shares at about 200p, that 11p dividend should still support a 5%-plus yield following the Verizon sale.
Furthermore, my sums suggest Vodafone’s annual dividend could cost between £2.5bn and £3bn…
…which should be very affordable given Vodafone has confirmed free cash flow should be more than £4.5bn post-Verizon.
I don’t want to speak for Charly here, and of course you can take my verdict with a pinch of salt…
…but overall, there seems no obvious reason for patient income seekers to sell their Vodafone shares right now.
Vodafone bought during the dotcom boom and still doubled its money
Sure, I know Vodafone has been a by-word for grandiose acquisitions and hefty write offs in the past.
Indeed, the group’s hostile bid to acquire Mannesmann for £112bn during 2000 remains the world’s largest – and quite possibly the most value-destructive – purchase of all time.
Nevertheless, Vodafone should actually score a profit from the Verizon deal, despite buying its US assets during 1999 and near the top of the dotcom boom.
In fact, Vodafone bought what became its Verizon stake for £43bn – and will now sell it for about £84bn.
Granted, doubling your money over 14 years is not the stuff of Warren Buffett.
But given how the FTSE 100 has essentially flat-lined during the same time – not to mention how badly the telecoms sector has fared – I feel this Verizon deal should be seen as a success.
At last! A British company is on the right end of a mega-deal
And let me just say this…
Something very reassuring about this mega-deal is that, for once, the British company involved is doing the selling and NOT the buying.
I mean, whenever a FTSE 100 member embarks on a major deal, it generally does the spending and shareholders always end up in a costly mess.
I mean, Vodafone buying Mannesmann, as well as…
…Royal Bank of Scotland buying ABN-AMRO for $97bn, Glaxo Wellcome acquiring SmithKline Beecham for $76bn and Rio Tinto purchasing Alcan for $38bn…
…each resulted in returns ranging from long-term stagnation to scrapped dividends and near bankruptcy.
(So the fortunes for Verizon Communications may not be great…)
Please do not let your Verizon payout sit idly in cash
Let me round off by saying that, with the £54bn jackpot set to be distributed early next year, I would urge all Vodafone investors to prepare for their windfall sooner rather than later.
That way you can shortlist the very best opportunities – and then compound your gain as soon as you receive your Verizon money – rather than let the proceeds sit idly in cash earning no interest.
Rest assured, our friend Charly from Share Advisor is on the hunt for ‘the next Vodafone’ and I am convinced a simple checklist of:
- Established history;
- Defensive sector;
- Attractive assets;
- Resilient cash flow;
- Dependable customers;
- Strong dividend advances, and;
- Undervalued share price, emphasised by a high yield…
…could lead him to even more bargains in the FTSE 100.
Certainly it is news such as the £54bn payday from Vodafone that keeps me, Charly – and the wider team at Motley Fool Share Advisor – on our mission to track down what we believe could be tomorrow’s greatest investment winners on your behalf.
> Maynard does not own any share mentioned in this article. The Motley Fool has recommended shares in Vodafone and GlaxoSmithKline.