Vodafone's Massive Giveaway

Watch stocks you care about

The single, easiest way to keep track of all the stocks that matter...

Your own personalized stock watchlist!

It's a 100% FREE Motley Fool service...

Click Here Now

This article has been adapted from our sister site across the pond, Fool U.K.

This week, Vodafone Group (NYSE: VOD  )  sprang a nice surprise on its shareholders -- and shareholders reacted positively, sending the shares up nearly 5%.

2.8 billion pounds in
Europe's biggest telecom operator revealed that it is set to receive a 2.8 billion-pound dividend from Verizon (NYSE: VZ  ) Wireless.

Vodafone owns 45% of Verizon Wireless, the second-largest wireless carrier in the United States. The good news is that the board of Verizon has decided to pay a $10 billion (6.1 billion pounds) dividend to its shareholders. Thus, Vodafone's share of this bumper payout is $4.5 billion, which is close to 2.8 billion pounds.

2 billion pounds out
What will Vodafone do with this slug of cash, which is due to arrive on Jan. 31?

The good news is that Vodafone has decided to return 2 billion pounds of this cash to its owners. This will arrive in a special dividend to be paid to shareholders next February. The remaining 0.8 billion pounds will be used to reduce Vodafone's net debt.

Vodafone's CEO, Vittorio Colao, remarked: "Our long-term partnership in Verizon's strong and successful wireless business has seen the value of our investment increase significantly over recent years. The dividend from Verizon Wireless allows us not only to reward our own shareholders with an immediate and sizeable cash return, but also to continue to reinvest in our business to improve our customers' experience, further strengthen our competitive position, and create additional value for shareholders."

Big numbers
Despite being an 89 billion-pound behemoth, Vodafone has been pretty sure-footed of late.

Last month, it collected 7 billion pounds in cash by selling its 44% shareholding in French mobile operator SFR to media conglomerate Vivendi. The board of Vodafone voted to use 4 billion pounds of this windfall to buy back 5% of its shares, in order to boost future earnings per share.

What's more, the announcement from Verizon vindicates Vodafone's decision to play the long game in the U.S. cell-phone market. Verizon's $10 billion dividend could be followed by more payouts, thus demonstrating the value of Vodafone's toehold in the United States.

Vodafone shares trade on an undemanding price-to-earnings ratio of around 11, and the company offers a nice full-year dividend.

In my view, the UK's most valuable brand (with 360 million customers worldwide) remains undervalued, with its shares especially appealing to income-seeking investors.

More from Cliff D'Arcy:

Cliff doesn't own shares of any company mentioned.

Motley Fool newsletter services have recommended buying shares of Vodafone Group. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Read/Post Comments (2) | Recommend This Article (4)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On July 30, 2011, at 6:32 PM, gcmagone wrote:

    What would be the dollar amount of the special to a shareholder who holds 100 shares?

  • Report this Comment On July 30, 2011, at 9:59 PM, dino4521 wrote:

    VOD has about 5.1B shares outstanding, so if it does a special dividend of 2B pounds, the special dividend will be about 0.39 pounds per share. At $1.64 per pound, this translates to about $0.64 per share or $64 per 100 shares. This is only an estimate.

Add your comment.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 1529123, ~/Articles/ArticleHandler.aspx, 10/26/2016 12:28:15 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 3 hours ago Sponsored by:
DOW 18,169.27 -53.76 -0.30%
S&P 500 2,143.16 -8.17 -0.38%
NASD 5,283.40 -26.43 -0.50%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

10/25/2016 4:03 PM
VZ $47.84 Down -0.37 -0.77%
Verizon Communicat… CAPS Rating: ****