Bloomberg News

Vodafone Climbs After Winning First U.S. Dividend Since 2005

July 29, 2011

(Updates with Vodafone closing price in seventh paragraph.)

July 29 (Bloomberg) -- Vodafone Group Plc climbed the most in four months in London trading after announcing a one-time dividend of 2 billion pounds ($3.3 billion), the first payout from its U.S. venture since 2005.

Verizon Wireless, in which Vodafone owns a 45 percent stake, said yesterday it will pay a $10 billion dividend. Vodafone, based in Newbury, England, will receive 2.8 billion pounds in total and use the remaining 800 million pounds to reduce net debt.

“It’s come in a few months early,” said Steve Malcolm, an analyst at Evolution Securities in London. “It’s the end of a long, widely anticipated, journey, but good news.”

The payout may appease Vodafone shareholders who criticized the absence of returns from the Verizon Wireless stake and pushed the company to consider selling the holding or merging with the U.S. wireless operator. Verizon Wireless had focused on paying debt, rather than dividends. The unit’s borrowings swelled when it bought Alltel in 2009, taking on more than $20 billion in debt.

Vodafone’s gross dividend yield, at about 6 percent, trails that of Europe’s biggest phone companies. Deutsche Telekom AG’s yield is 6.5 percent, compared with 9 percent for Telefonica SA and as much as 9.8 percent for France Telecom.

Reinvesting

“The dividend from Verizon Wireless allows us not only to reward our own shareholders with an immediate and sizeable cash return, but also to continue to reinvest in our business,” Vodafone Chief Executive Officer Vittorio Colao said in the statement.

Vodafone, the world’s largest mobile-phone company, rose 4 percent to 172 pence, the steepest increase since March 21. The shares have gained 14 percent over the past 12 months. Verizon Communications Inc., which owns 55 percent of Verizon Wireless, dropped 0.7 percent to $35.42 at noon in New York.

Vodafone repeatedly opted to keep its stake in the venture, the largest wireless carrier in the U.S. Verizon said in May last year it would be interested in purchasing Vodafone’s holding and the partners held talks in March 2010, discussing options including a merger, buyout or a dividend payout, two people familiar with the deliberations said at the time.

Verizon Wireless will still have enough funds to buy assets, such as any divestitures that may be part of AT&T Inc.’s acquisition of T-Mobile USA, said spokesman Peter Thonis. The T- Mobile deal, announced in March, would make AT&T the biggest U.S. carrier.

‘Pretty Good’

Vodafone Chief Financial Officer Andy Halford said last month Vodafone could potentially get an annual dividend of as much as $5.5 billion from its holding, based on Verizon Wireless’ annual free cash flow of $10 billion to $12 billion.

The Verizon payment is “pretty good,” said Robin Bienenstock, an analyst at Sanford C. Bernstein in London. Investors may be concerned “about the lack of promise of continuity but because Verizon needs the cash to cover their corporate dividend, it will be continuous.”

Former Vodafone Chairman John Bond told shareholders in London this week that the prospect for a dividend from Verizon Wireless, its U.S. venture, looks “very good.”

--Editors: Simon Thiel, Kenneth Wong.

To contact the reporters responsible for this story: Jonathan Browning at jbrowning9@bloomberg.net; Olga Kharif in Portland, Oregon, at okharif@bloomberg.net

To contact the editors responsible for this story: Kenneth Wong at kwong11@bloomberg.net; Peter Elstrom at pelstrom@bloomberg.net


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