Vodafone Group Plc (VOD) and Verizon Communications Inc. (VZ), co-owners of Verizon Wireless, will get an $8.5 billion dividend from the venture by the end of 2012, the second straight year the unpredictable windfall will be paid.
The distribution will be made in one or more tranches, in proportion to the owners’ interest in the company, Verizon Wireless said in a statement. Verizon Communications owns 55 percent of the business and Vodafone holds 45 percent.
While the payout was down from last year, it exceeded the expectations of some shareholders and may come as a relief to Vodafone investors, who have less control over how much money is distributed because of their minority stake. Verizon Wireless, the largest U.S. mobile-phone carrier, has served as a profit engine for the two companies. Its margins topped analysts’ estimates last quarter as sales of smartphones helped boost customers’ bills.
“Looks like early Christmas for shareholders,” said Todd Lowenstein, a Los Angeles-based fund manager at HighMark Capital Management. His firm oversees $17 billion in investments, including Vodafone shares. “We were expecting about $7.5 billion,” he said.
Vodafone said today it plans to start a 1.5 billion-pound ($2.4 billion) share-repurchase program after receiving its share of the dividend. Peter Thonis, a Verizon Communications spokesman, said the company wasn’t providing any further comment on the dividend.
Verizon Communications shares fell 0.2 percent to $42.56 at the close in New York before the announcement. Vodafone dropped 4.7 percent to 159.85 pence at 12:01 p.m. in London today after reporting second-quarter service revenue that missed analysts’ estimates and a 5.9 billion-pound writedown in Spain and Italy.
Verizon Wireless’s dividend was $10 billion last year, marking its first payout since 2005. The company has no regular dividend policy, leaving investors unsure whether they’ll get a payment each year.
Vodafone’s portion will be about $3.83 billion this year, down from $4.5 billion in 2011.
“These results highlight the good quality of the decision made a few years ago by the board to remain exposed to the U.S., which is a healthy market, and specifically Verizon is a very healthy company,” Vodafone Chief Financial Officer Andy Halford said today.
Verizon Wireless was formed in 2000 when what was then Bell Atlantic Corp. combined its U.S. wireless business with that of Vodafone’s. In recent years, the Basking Ridge, New Jersey-based company has outpaced AT&T Inc. (T) and Sprint Nextel Corp. (S) in adding speedier LTE network technology and attracting customers.
Before last year, Verizon had withheld the dividend from the partnership in order to focus on paying down debt.
“Verizon is probably feeling like they are on firm ground, and this is a show of confidence predicated on better business momentum,” HighMark Capital’s Lowenstein said.