Managers forced to wait for Vodafone-Verizon dividend
Key UK dividend payer could be set for bumper cash boost from US partner, but investor concerns remain about timing.
UK equity income managers are holding on to high stakes in Vodafone in spite of increasing investor concern about a lack of information from its key US partner.
Verizon Wireless - a joint venture between Vodafone in the UK and Verizon Communications in the US - is in discussions about paying a special dividend, according to Bloomberg. A $10bn (£6.4bn) payout at the beginning of this year resulted in a $4bn boost to Vodafone, which holds a 45 per cent stake in the firm.
However, in Vodafone’s latest financial report, released last week (July 20) there was no mention of a dividend payment from Verizon.
Premier Asset Management’s UK income manager Chris White holds Vodafone as one of the top stocks in all three of his equity income portfolios, and said he would keep it as a core holding.
He said: “The market feels slightly disappointed that Vodafone’s revenue growth came up slightly worse than expected [at 0.6 per cent]. The market was also hoping for more guidance about how much the Verizon dividend was likely to be and when it would be paid.”
Verizon Wireless has resisted calls from investors to pay a regular annual dividend, meaning Vodafone and other direct investors in the US company cannot rely on regular payouts. In September last year Verizon Communications chief executive Lowell McAdam said in an interview with the Financial Times that the firm was prioritising acquisitions and other capital spend over dividend payments.
Graham Ashby, manager of the £110.4m Ignis UK Equity Income fund, said the decision on the dividend was likely to come towards the end of the year, and warned there was “no guarantee” Vodafone would get any payment, making it hard to price the company as irregular dividends were harder to factor in.
Mr Ashby added: “Vodafone says it has a good cashflow and reported £6.1bn in cash, but this tends to be spent on spectrum costs taxes so it is more like £1.5bn. This gets paid as dividends so its debt is not being forecast to go down soon.”
In spite of this pessimistic view Mr Ashby is keeping Vodafone as his top holding at 5 per cent of the portfolio, at least until “something more interesting comes along”, as he felt the telecoms giant could realistically see its share price gain a further 10 per cent.
Of the 101 funds in the IMA UK Equity Income sector, 78 have a stake in Vodafone and 46 have more than 5 per cent invested in the firm, which has consistently grown its dividend in recent years.
Several of the UK’s biggest equity income funds hold big stakes in Vodafone, with BlackRock’s £682.4m UK Income fund, managed by Nick McLeod-Clarke and Adam Avigdori, investing 9.7 per cent.
The company is also a key holding of Neil Woodford’s £11.7bn Invesco Perpetual High Income and £9.1bn Invesco Perpetual Income funds, and Nick Kirrage and Kevin Murphy’s £1bn Schroder Income and £743m Schroder Income Maximiser funds.
All three firms declined to comment.