Should Vodafone cut its dividend?

One of the few things that Vodafone has going for it at the moment for investors is its dividend. The current dividend yield is between 6-7%, helped by the potential of growing payments to the company from its investment in Verizon Wireless. So, it will perhaps come as a surprise, especially to Vodafone investors, that at least one view from the city seems to be suggesting that the company should cut its dividend. Here's what Nomura had to say in a release today.

"Paying an inflated ordinary dividend has been discredited as a way to reward shareholders, it restricts strategic flexibility and it leaves Vodafone dependent on Verizon Wireless cash flows which compromises its ability to negotiate with Verizon. A review of cash return policy is overdue, we believe."

http://www.digitallook.com/cgi-bin/dlmedia/security.cgi?csi=10097&action=news&story_id=20580488

So, reading between the lines are they saying cut the dividend? Invest the money elsewhere in the business? Nomura does seem to think that the licence renewal for a company like Vodafone could act as a drag on the company and its share price for years to come.

The broker estimates Vodafone's spectrum bill to be at least £1.5bn annually for 2013-2016 (year-end March) and £20bn over 10 years. For the current financial year (ending March 2013), spectrum costs will be around £3bn, reducing controlled cash flow to £2.2bn, well below the dividend cost (£4.9bn).

Is the Vodafone dividend safe? Probably for now as I suspect that any announcement of a dividend cut on top of all the other perceived bad Vodafone news would see the share price going lower given the poor sentiment that surrounds the company at the moment. However, the fact that one city voice is suggesting, in their words, that "paying an inflated ordinary dividend has been discredited as a way to reward shareholders", suggests that Vodafone has a lot to do to improve sentiment towards it going into 2013.