Vodafone Group (VOD) is increasing its "final" dividend (the second semi-annual dividend for 2013) by 7.0%, from 6.47 to 6.92 pence per ordinary share (news release). At the current exchange rate (£1 = $1.52), share conversion (1 ADS = 10 ordinary shares), and ADS charge ($0.02 per ADS), my 125 shares of VOD should provide me with a final dividend of about $129, to be paid sometime in August.
Vodafone also announced that the £2.1 billion dividend payment to be received in June 2013 from Verizon Wireless (45% of which is owned by Vodafone) will be "retained in the business," so there will be no special dividend to shareholders this year. In addition, the company "aims at least to maintain the ordinary dividend per share at current levels." Is this a hint that shareholders may not see much of a dividend increase next year?
The company's operating results continue to be dragged down by Europe and it is unclear when the situation there will improve. Verizon Wireless continues to do very well, but there is uncertainty about the regularity of future dividend payments and whether Verizon (VZ) will make a bid for Vodafone's stake (which has an estimated value of $90-100 billion with no premium factored in). I plan to continue holding VOD and wait to see what happens with the rumors swirling around Verizon Wireless.
I think Vodafone is a strong carrier in Europe along with T-Mobile and Telefonica so I think there is no big risk of lowering the dividend. They may stop increasing it, but the cut is quite unlikely. Also the crisis will not take forever, so my opinion is that buying now when everybody is freaking out could be a good move. I am somewhat optimistic about European stocks. Theywere beaten down significantly, and many of them are very good businesses. I believe VOD is one of them.
ReplyDeleteMartin: I agree that a dividend cut is unlikely; it is fairly well-covered by their free cash flow. However, I wonder a bit about the prospects for dividend growth over the next few years while the European situation is still being worked out.
DeleteDGM,
ReplyDeleteI'd expect that the VZW situation will be resolved this year and that the most likely outcome is VZW returns to the Verizon fold. This may mean the possibility of a VOD special dividend next year, but I am more uncertain on the medium term growth profile of VOD, as in my view VZW stake is really the strongest driver of revenue growth currently.
Integrator: I think VOD is much less appealing without the VZW. Thus, if the stake were to be sold to VZ, then I would consider selling my VOD position, although my decision would depend on what VOD's management would decide to do with the proceeds.
DeleteWith this weeks news, I'll be following VOD much more closely. Not sure that sinking billions in overseas operations is the way to go.
ReplyDeleteHere is an interesting take on the dividend (scroll down about 1/4 page):
http://mdi.morningstar.com/BlogArticle.aspx?postid=3425545
ADY: Thanks for the link -- my view on VOD is similar to the author's. I think I'll just need to monitor VOD more closely than most of my other stocks.
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