Vodafone gives short shrift to unhappy investors

Despite disappointment over Verizon windfall, they’re told firm’s dividend is still best in Europe

Vodafone investors unhappy with the operator’s decision not to share out its £2.4 billion Verizon windfall have been told the move is in their best long-term interests. Yesterday [November 13th 2012] Britain’s biggest mobile carrier reported a shock loss in the first six months of the financial year, writing off £5.9 billion from its Spanish and Italian businesses due to the prolonged recession.It took the shine off a £2.4 billion cash pay-out from its 45 per cent stake in Verizon Wireless in the USA, though there was further investor disappointment when Vodafone revealed it would be using more than half that windfall to buy back its own shares rather than increase its dividend this year.

But investors who complained to CEO Vittorio Colao have since received a formal reply reminding them that the company is already the FTSE’s biggest dividend payer with a yield of just over 6 per cent and probably the biggest in all Europe.

The reply adds, “We also have a significant number of shareholders who, for tax or other reasons, prefer us to use one-off inflows like dividends from Verizon Wireless for buybacks rather than dividends, so we need to balance the needs of all our shareholders.

By paying out a 6 per cent yield and having a small buyback, we believe we are achieving this.”

“Our primary goal is to maintain the ordinary dividend and one of the ways in which we can do that is to use one off cash inflows to reduce our total number of shares through buybacks.

This will allow the ordinary dividend to remain comfortably affordable, particularly as our business faces headwinds from the economic challenges of Europe.

We believe shareholders would prefer to receive a more certain annual dividend at an attractive yield than a year or two of special dividends which could increase the risk that we might not be able to sustain the ordinary dividend over time.”

Last night Vodafone’s share price, having lost nearly 2.5 per cent due to the disappointing results, stood at 162 pence.