Shareholders of British telecommunications giant Vodafone Plc have something to cheer about. The company made public that it will pay out dividends worth a total of 2 billion pounds (US$3.3 billion) to all of its stockholders in January 2012.
Vodafone’s shares rose immediately following the announcement last week.
"This is a positive announcement and will, hopefully, be the first of many such payments," said analysts at Killik & Co.
“It is a very welcome development, and positive news for Vodafone’s shareholders,” said an investor from AXA Investment Managers UK.
This is the first ever dividend payment made by Vodafone since its partnership with Verizon Communications in 2005, which formed the joint venture Verizon Wireless, the No. 2 wireless provider in the United States. Vodafone owns 45 percent of Verizon Wireless, while Verizon Communications owns the remaining 55 percent.
In the official press release from Vodafone, Vittorio Colao, the company’s CEO, commented, “Our long-term partnership in Verizon’s strong and successful wireless business has seen the value of our investment increase significantly over recent years.”
Vodafone’s dividend comes after Verizon Wireless announced that it would pay a 2.8 billion pound (US$4.6 billion) dividend to Vodafone, its joint venture parent. Of that amount, 2 billion would be paid to Vodafone shareholders, while 800 million pounds will go toward paying off Vodafone’s existing debt.
The majority partner, Verizon Communications, also received 3.3 billion pounds (US$5.4 billion) that it will use to pay off debt (mainly from the purchase of Alltel in 2009 for $20 billion) and will not disburse any dividend of its own to shareholders.
“The dividend from Verizon Wireless allows us not only to reward our own shareholders with an immediate and sizeable cash return, but also to continue to reinvest in our business to improve our customers’ experience, further strengthen our competitive position and create additional value for shareholders.”
In the past, some Vodafone shareholders have not been happy with its venture with Verizon, as Verizon Wireless used all of its surplus funds for reinvestment. Top Vodafone shareholders have been pushing the company to opt out of the merger with Verizon and sell off its 45 percent stake. Verizon said that it would be interested in acquiring Vodafone’s holding share, but no progress has been made so far as Vodafone management has resisted selling its stake in the partnership.
"The agreement to restart Verizon Wirelesss dividends fundamentally changes the multiples at which Vodafone trades,” said Analysts at Banco Espirito in a research note.
Vodafone is the largest telecommunications company in the world, having revenues of 46 billion pounds (US$75 billion) and market capitalization of 93 billion pounds (US$151 billion) in 2010. It has extensive operations in the U.K., continental Europe, the Middle East, and Asia.