Vodafone investors hoping for news next week of a Verizon Wireless dividend look set to be disappointed. According to unnamed sources quoted by Bloomberg, the board of Verizon Wireless--a joint venture between Verizon Communications and the Vodafone--has no plans to discuss a potential dividend in a meeting scheduled for Sept. 19.
According to the report, a dividend decision could be made at Verizon Wireless' December board meeting, or even at an unscheduled board meeting before that. Verizon and Vodafone declined to comment, according to Bloomberg.
To award a dividend, Verizon Wireless must first gain approval from Verizon Communications. This is by no means certain. In July 2011, Verizon Wireless announced a $10 billion (£6.2 billion) divided split along equity lines (55 per cent for Verizon Communications and 45 per cent for the Vodafone Group). That was the first dividend payment by the largest operator in the United States since 2005. Needless to say, Vodafone investors do not want to wait as long for the next dividend award.
"Vodafone investors want clarity as soon as possible," Peter Braendle, a manager at Swisscanto Asset Management whose portfolio includes Vodafone shares, told Bloomberg. "The dividend is an important aspect when it comes to telecom investments and the current uncertainty is a concern."
James Britton of Nomura Holdings, also cited by the Bloomberg report, cut the rating on Vodafone's shares from "buy" to "neutral" on news of the dividend uncertainty. Britton expressed concern that Vodafone's current policy of allocating all of its free cash flow to shareholders was not sustainable without the boost of a Verizon Wireless dividend. Vodafone used a large chunk--$3.2 billion--of last year's Verizon Wireless dividend as a special dividend to its own shareholders.
Verizon Communications CEO Lowell McAdam said in September 2011 that Verizon Wireless will not pay an annual dividend to Vodafone and Verizon Communications, because the carrier might need the cash to buy spectrum or make an acquisition. Indeed, Verizon spent $3.9 billion to by AWS spectrum from a group of U.S. cable companies in a deal that was announced in December 2011 approved by regulators in August. "We're going to look at it [the dividend] every year and we'll decide as we go along," he said at the time.
The dividend uncertainty comes on the heels of a troubling set of quarterly figures from the UK-based giant. In the three months ending June 30, Vodafone posted group-wide service revenues of £9.98 billion, up only 0.6 per cent from last year, largely because of financial uncertainty in the euro zone.
By contrast, management at Verizon Communications was sufficiently confident in the company's operating performance and cash-flow generation to increase its quarterly dividend by 3 per cent last week. Verizon had $10 billion in cash and cash equivalents as of June 30.
- see this Bloomberg article
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