Verizon Wireless to pay parents $7 billion dividend

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Verizon Wireless to pay parents $7 billion dividend

Surprise move.

Verizon Wireless will pay parents Verizon Communications and Vodafone Group a dividend of US$7 billion (A$7 billion) in June.

The dividend comes amid mounting speculation Verizon could buy Vodafone's stake in the venture if they can agree on a price. Verizon has been preparing a US$100 billion bid for the stake but investors said they expect Vodafone to seek a higher price.

The dividend decision follows recent comments from Verizon CEO Lowell McAdam, who said he did not want to pay a premium for the stake and the two owners could face a "lean" year in terms of the Verizon Wireless dividend.

"I wouldn't call that lean," said Evercore analyst Jonathan Schildkraut, referring to the US$7 billion dividend, which is payable on June 25.

Verizon, which controls the wireless venture and dividend decisions, declined to comment on the Verizon Wireless statement. Vodafone had no immediate comment.

Schildkraut said he was surprised by the decision as he read McAdam's previous comments as a sign that the executive wanted to put pressure on Vodafone to agree to a deal. Schildkraut said he did not think Verizon has an urgent need for cash.

"Despite more contentious commentary from Verizon management its just does not appear that withholding Verizon Wireless cash flow from Vodafone is likely to be part of the negotiation," Schildkraut said.

The Verizon Wireless board decided on the dividend on May 9, according a filing the company made with regulators.

The wireless venture's last dividend to its parents was a US$8.5 billion payout in the fourth quarter of 2012, which followed with a US$10 billion payout made in January 2012.

Verizon had refused to sanction a dividend from the Wireless asset between 2005 and 2011 because it said it preferred to pay down debt and make acquisitions. At the time that was seen by analysts as a move to pressure Vodafone out of the venture.

Based on Verizon's 55 percent ownership of the venture and Vodafone's 45 percent stake, the June payout will bring Verizon cash payments of US$3.85 billion while Vodafone will receive US$3.15 billion, according to the company.

Verizon shares rose slightly in late trade to US$53 after closing at US$52.55 on the New York Stock Exchange.

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