I bought VOD a couple of months ago because of Einhorn's comments on the Verizon Wireless dividend.
Message 26352956
From an article in the WSJ, it looks like Verizon is warming up to the idea.
online.wsj.com
Verizon Wireless might start paying a dividend in 2012, providing parents Verizon Communications Inc. and Vodafone Group PLC with a rich source of cash.
The largest U.S. wireless carrier by subscribers has seen stellar growth and profits over the past few years. But the massive amounts of cash generated has gone primarily toward paying down debt, with Vodafone in particular getting little monetary benefit.
John Killian, Verizon's chief financial officer, first suggested the possibility of a dividend in a Thursday interview with Bloomberg. He said the door was open for a payout once Verizon Wireless finishes paying down its debt in 2011. A Verizon spokesman confirmed the comments.
Majority owner Verizon's willingness for a payout underscores the growing need for both Verizon and Vodafone to draw upon Verizon Wireless's cash flow for their own needs, and provides a firmer target for when it might materialize.
"While [Mr. Killian's] comment falls short of a definitive commitment, we nevertheless believe the remark is significant, inasmuch as this is the first time, to our knowledge, that Verizon has publicly put a specific date on potential distributions," said Robin Bienenstock, an analyst at Sanford C. Bernstein LLC.
It's not the first time Mr. Killian hinted at a dividend. He told investors in late April during a quarterly conference call that the company would look at the issue again in 2011. "It's an event off into the future," he said.
For Vodafone, which owns a 45% stake in Verizon Wireless, the lack of a dividend has been a growing concern for investors. Verizon Wireless, which was created from the merger of wireless assets owned by then-Bell Atlantic and Vodafone, paid a dividend between 2000 and 2005 but ceased the payout in 2006.
Vodafone Chief Executive Vittorio Colao said late last year that the company had to resolve its situation with Verizon Wireless.
"The U.S. is clearly the most important thing that we have, because it's 37% of our [earnings per share] and 0% of our cash flow, so it's a pretty asymmetrical type of situation," Mr. Colao said in November during an investor conference.
Vodafone declined to comment on Mr. Killian's comments.
Ivan Seidenberg, chief executive of Verizon, which owns a 55% stake in Verizon Wireless, has said he will only consider a dividend once the venture's debt has been paid off.
The move would represent a coup for Vodafone, which would see its free cash flow increase by an estimated 30%, Mr. Bienenstock said, adding the company's stock currently trades as if it has no stake in Verizon Wireless.
Verizon's stock trades lower than rival AT&T Inc. because Wall Street already assumes an eventual cash payout to Vodafone, according to Auriga USA LLC analyst Chandan Sarkar.
"We believe investors may choose to value Verizon at a discount as they better recognize the implications of Vodafone owning a 45% stake in the portion of Verizon's business that generates 70% of its cash flow today," he said.
But cash from the wireless business would secure both Verizon and Vodafone's commitments to pay a dividend to their shareholders.
A dividend would also dash speculation that the two giants would merge in a trans-Atlantic deal, analysts say. Mr. Seidenberg has said he sees little reason to merge with Vodafone. But it does keep the door open to Verizon eventually buying out Vodafone's stake in Verizon Wireless, something Mr. Seidenberg has regularly said he was willing to do. |
