Vodafone Cuts Dividend

FTSE 100 telecoms firm, which was yielding nearly 10%, has slashed its full-year dividend by 40%

James Gard 14 May, 2019 | 10:59AM
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FTSE 100 telecoms giant Vodafone (VOD) has slashed its dividend by 40%. The move, which had been widely anticipated by commentators, came as the telecoms giant revealed it made an annual loss in the last financial year. 

Vodafone’s full-year dividend is 9.00 euro cents, down 40% from the previous year. The group’s dividend yield was nearing 10%, a level that many analysts saw as unsustainable. Shares fell yesterday after speculation that a dividend cut would be revealed when the firm released its full-year results.

Michael Kempe, chief operating officer at Link Market Services, publishers of the UK Dividend Monitor, said Vodafone had been slipped down the rankings of the UK’s largest divided payers over the past few years and its share price had been pricing in a dividend cut.

The move is expected to save the company £8bn over the next five years, Kempe said, and “a reduction of this size will make a noticeable dent in the £106bn of dividends we forecast UK plc as a whole to pay this year.”

Morningstar.co.uk’s most recent analysis of the FTSE 350’s top dividend payers named Vodafone as one of the highest-yielding stocks on the UK market. 

Vodafone made a loss of €4.11bn in the year to March, after a €4.76bn profit the year before. Nick Read, Vodafone’s group chief executive, said the dividend cut will help to reduce the firm’s debt.

Nevertheless, the move surprised some analysts. Morningstar’s Allan C. Nichols argued that a dividend cut was not necessary while Vodafone’s deal to buy Liberty Global’s Assets was still waiting for regulatory approval.

“If the deal isn’t approved, we believe Vodafone has plenty of debt capacity to finance any shortfall in free cash flow to cover the dividend." he said. "If the Liberty Global deal is approved, then its debt capacity will be very limited, and we think a dividend cut may be needed.”

Nichols added that the sale of the firm’s New Zealand operations, announced yesterday, will help free up cash for dividend payments. Morningstar analysts believe that Vodafone shares are still significantly below their fair value estimate of 250p, above the current share price around 130p.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Vodafone Group PLC70.58 GBX1.15Rating

About Author

James Gard

James Gard  is senior editor for Morningstar.co.uk


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