Vodafone Group Plc (VOD) investors waiting for Verizon Communications Inc. (VZ) to approve a dividend from their U.S. mobile-phone venture will have to hold out longer, according to two people with knowledge of the matter.
Verizon Wireless’s board doesn’t plan to discuss a potential dividend at a Sept. 19 meeting, said the people, asking not to be identified because the agenda is confidential. A decision could still be made at a December gathering or at an unscheduled board meeting anytime, one of the people said.
It has been more than a year since Verizon Wireless announced a $10 billion dividend in July 2011, the first payout since 2005. The need for Vodafone, which owns 45 percent of Verizon Wireless, to negotiate a payment each year from the largest U.S. mobile operator is an uncertainty for investors at a time when the Newbury, England-based company faces declining spending in Europe and slowing growth in India.
“Vodafone investors want clarity as soon as possible and really need a quick decision on the Verizon Wireless dividend,” said Peter Braendle, who helps manage about $55 billion at Zurich-based Swisscanto Asset Management, including Vodafone shares. “The dividend is an important aspect when it comes to telecom investments and the current uncertainty is a concern.”
Vodafone fell 0.2 percent to 176.25 pence as of 8:31 a.m. in London trading. Verizon Communications added 0.4 percent to $44.24 in New York trading yesterday.
Nomura Holdings Inc.’s head of telecommunications research, James Britton, cut the bank’s rating on Vodafone shares to “neutral” from “buy” today. In a report titled “Dividend Under Pressure,” Britton said that Vodafone’s current commitment to paying 100 percent of its cash flow is “unsustainable unless funded directly” from Verizon Wireless’s cash flow.
When Vodafone received the $4.5 billion dividend from the venture last year, it paid 2 billion pounds ($3.2 billion) of it as a special dividend to shareholders. Previously, Verizon had withheld the dividend from the partnership to focus on paying down debt.
Vodafone in May announced a final dividend of 6.47 pence a share, leading to a full-year dividend of 13.52 pence a share, including the Verizon contribution.
“The cycle of spectrum investment is more congested than in the past, particularly for Vodafone across its portfolio of 30 markets,” Britton wrote. “Investors should treat spectrum as recurring spend to be factored into underlying cash generation.”
Vodafone Chief Financial Officer Andy Halford said in May that a dividend should come in “hopefully on a reasonably regular basis.”
Verizon won approval from the Federal Communications Commission on Aug. 23 to purchase airwaves from cable companies led by Comcast Corp. (CMCSA) for $3.6 billion.
Will Draper, an analyst at Espirito Santo Investment Bank, had anticipated a Verizon Wireless dividend decision shortly after the ruling. He wrote in a note last month that he anticipated Verizon Communications to increase the dividend from the venture this year by at least 5 percent.
Last week, Verizon Communications itself raised its quarterly dividend by 3 percent, the sixth consecutive year of increases.
Vodafone repeatedly opted to keep its stake in the venture. Verizon, based in New York, said in May 2010 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.
Vodafone, which trails China Mobile Ltd. (941) in annual sales, is increasingly relying on its U.S. wireless venture to make up for shrinking sales in crisis-stricken European economies. On July 20, Vodafone reported first-quarter service revenue that missed analysts’ estimates.
“Any delay in the dividend decision would be a short-term negative for Vodafone investors,” said Todd Lowenstein, a Los Angeles-based fund manager at Highmark Capital Management Inc., which oversees about $17 billion, including Vodafone shares. “The story really hinges on returning excess capital back to shareholders in the wake of anemic growth prospects.”