Vodafone could receive an annual dividend of up to $5.5bn from its 45 per cent stake in Verizon Wireless beginning next year, said Andy Halford, Vodafone chief financial officer, on Wednesday.
The dividend estimate is based on the $1bn-a-month or $12bn-a-year free cash flow that Verizon Wireless generates, cash that to date has been mainly used to pay down the company’s debt.
Verizon Wireless, the largest US mobile operator, stopped paying a dividend to its corporate parents, Verizon Communications and Vodafone, in 2005.
Vodafone, the UK-based mobile network operator, has been pressing Verizon Communications, which owns a majority stake in Verizon Wireless, to sanction a resumption of the dividend from the end of this year when the debt is due to be fully repaid. Verizon Communications has said that Verizon Wireless is likely to pay “a fair dividend” to its parents beginning in 2012, but has not indicated what level of pay-out it favours.
Analysts believe Verizon Communications will sanction a resumption of dividend payments from Verizon Wireless next year, in part to avoid the risk that Verizon Communications might have to reduce its own dividend pay-out.
Vodafone generated £7.1bn of free chase flow in the year to March 31 2011. So a Verizon Wireless dividend worth $5.5bn would boost Vodafone’s free cash flow by almost 50 per cent and therefore should significantly increase returns to the UK mobile operator’s shareholders.
Mr Halford’s comments, made to reporters during a visit to India, represent the first time that Vodafone has publicly indicated what size of pay-out it is expecting. The two companies have been negotiating over the dividend since last year and Mr Halford said yesterday that no agreement has been reached yet.
His comments come at a particularly sensitive time in relations between two companies. Ivan Seidenberg, Verizon Communications chief executive, is due to retire this year and will be replaced by Lowell McAdam, president and chief operating officer.
Meanwhile, Vittorio Colao, Vodafone chief executive, has focused on unwinding some of his predecessors’ takeovers, including the sale of a minority stake in China Mobile last year and reduce its interests in Japan’s Softbank. Vodafone has also just completed the sale of its 44 per cent holding in SFR, the French mobile operator, to Vivendi and is pursuing a disposal of its 24 per cent stake in Polish mobile-phone operator Polkomtel.