Vodafone negotiating to sell its cash cow
In a move which has huge implications for the company and for the many managers whose trusts own its stock, Vodafone confirmed to the market this morning that it is in discussions about the sale of its 45% stake in Verizon Wireless.
Vodafone is the third biggest stock on the UK market, with a value of around £94 billion. It’s a large constituent of the portfolios of many investment trusts, especially those with income an bent because it’s a huge dividend payer. A large part of that dividend in recent years has been funded from payments from its minority owned US business, though the final decision on that has rested with Verizon Wireless’ 55% shareholder Verizon Communications who had made it clear to Vodafone that it wants to own all of the business.
- Investor attractions remain as Vodafone is in talks to sell stake in US business
- Capital raised by sale would help repay debt and pay special dividends
- Vodafone’s business would have a bigger European focus
Helal Miah of The Share Centre which continues to recommend investors ‘buy’ Vodafone explains what it means for investors.
“Vodafone’s share price has jumped over 9% this morning as a result of the company announcing it is in talks to sell its stake in US company Verizon Wireless. As Verizon is planning to finance the acquisition with debt it is keen to make the deal sooner rather than later, due to the potential interest rate rise in the US.
“The deal, which is said to be in the region of $100-$130bn, would enable the company to repay some debt and pay special dividends to shareholders. However, Verizon Wireless is a key contributor to Vodafone’s profits and whilst dividends could be boosted in the shorter term, investors should expect lower yields in the longer term.
“Vodafone’s business would also have a bigger European focus and challenges in the region have continued to impact figures.
“We continue to recommend Vodafone as a ‘buy’ for income seekers and believe in the short to medium term dividends will remain competitive. Vodafone is currently one of the biggest dividend payers in the FTSE 100 and has an attractive yield of around 5%.”
Helal Miah is an Investment Research Analyst at The Share Centre