Vodafone and the Verizon dividend mystery

The Vodafone share price has been in a bit of a slump recently, nothing dramatic but a few fears have crept in as to whether this FTSE100 behemoth can maintain its current growth, certain negatives coming out of Europe suggesting that it might be heading for tougher times.  Vodafone offers a pretty good dividend yield currently around 5.5% but could rise to 7.5% next year.  This does not include the special dividends that shareholders have been getting courtesy of its 45% stake in US based Verizon Communications. However, in the last week or so the share price has fallen in part because of a fear that Vodafone will not get a dividend from Verizon this year.  It appears there is nothing substantial or factual to support this, just one of those stock market rumours that tend to emerge and effect a share price from time to time.


The Times reports;

The Tempus column in The Times says not to believe all the rumours surrounding telecoms group Vodafone and the speculation on whether or not it will not receive a special dividend from its 45 per cent-owned US joint venture with Verizon Communications, Verizon Wireless.

Shares fell yesterday after Verizon last week announced a 3% increase in its quarterly dividend but failed to mention its intentions for Verizon Wireless, leading some to think that it was freezing out Vodafone following the $4.5bn special dividend paid last year.

"Frankly, this is implausible for several reasons, even though Verizon isn’t saying much. First, it should need the dividend flow from the joint venture to fund that payment to its own shareholders. Second, it has denied any such intention before," writes the column's Martin Waller.

He said that the 6% yield (when excluding a Verizon venture dividend) is a good enough reason to hold the shares and some clarification on the dividend issue should see them rise again.

http://www.sharecast.com/cgi-bin/sharecast/story.cgi?story_id=20359010

I'm tempted to agree, it would be quite remarkable for Verizon not to pay Vodafone anything, certainly not without the companies having agreed to some deal beforehand. Given the current yield, weakness in the Vodafone share price might indicate a buying opportunity for those who like a nice big dividend in these times of savings interest rate austerity. Vodafone shareholders probably have more to fear from a downturn in business than Verizon not paying up, but even that might be overdone.