The Chancer asks … Is Vodafone about to become a new milch cow for shareholders, yielding record dividends?
According to Britain’s Sunday Times it is and, while the UK newspaper doesn’t reveal its sources, it nevertheless insists that Vodafone is about to get another injection of $4.5 billion from Verizon Wireless, its US venture with Verizon Communications. Moreover, the newspaper claims Vodafone will probably pass the money on to shareholders in the form of a special dividend.It’s a sentiment shared in part by broker Liberum Capital which estimates Vodafone could receive £3 billion from Verizon this financial year but up to £4 billion by 2016.
Vodafone, it reckons, is likely to plough 75 per cent of the windfall into a special dividend as it did previously with money from Verizon, translating into a whopping 15 per cent rise in the dividend to 4.6 pence this financial year.
Verizon Wireless suspended its dividend in 2005 in order to reduce debt but the US number-one operator is now thought to be generating $1 billion cash every month on the back of rapidly growing revenues.
The operator is 45 per cent owned by Vodafone and 55 per cent by Verizon Communications.
Last week Vodafone shares hit a 52-week high, peaking at 184.9 pence before slipping back slightly. They closed on Friday [July 13th 2012] at 182.4 pence.
At the time of its last results announcement Vodafone reiterated its plan to raise its dividend by at least 7 per cent per year.
Other telecom outfits promise much of the same in 2014 with, for instance, BT hinting at a 5.2 per cent yield, TalkTalk 6.3 per cent and KCOM 8.1 per cent.
The worry, of course, is that the greater the dividend companies offer the more chance there is that their share price may soon need some artificial respiration if not the kiss of life.
And, remember, Vodafone directors themselves have been getting shot of their own holdings like there’s no tomorrow with CEO Vittorio Colao alone getting shot of around £5.8 million last month.
If the share price isn’t in trouble and dividends are going through the roof, what’s the rush?