Vodafone (NASDAQ:VOD) has just paid its final dividend for 2012. The first payment in February 2012 included a special dividend from Verizon Wireless of $.4736 per ADR. Since Vodafone owns 45% of Verizon Wireless, a major portion of its earnings comes from Verizon Wireless dividends paid. Last year by this time, Verizon (NYSE:VZ) [55% owner of Verizon Wireless] had already announced that it would pay a special dividend from Verizon Wireless in 2012. There is ongoing speculation that it will pay it again in 2013. Helix Investment Management wrote on June 27, 2012, that Vodafone would be a better investment in Verizon Wireless than Verizon, since it had a lower P/E ratio, more yield and more dividend growth.
In light of the above, I have decided to run a dividend growth study for Vodafone over the last 5 years to see what return that investment with dividends reinvested has provided:
|Stock||Date of reinvest||Div Rate||# Shares||Dividend||Drip price||# Shares pur||Total Value||Current Yield|
The above dividend reinvestment spreadsheet looks different from most U.S.-based companies, because Vodafone pays semiannual dividends, a preliminary dividend in November and a final dividend in June. It should also be noted that Vodafone is a British company and follows European tradition of high-dividend yield. The best part of its being British is that there is no foreign tax withholding on the dividend. However, if you buy the stock as an ADR, there is an ADR fee each time the dividend is reinvested. Each ADR is equivalent to 10 common Vodafone shares. I have shown dividend reinvestment in U.S. dollars for the ADRs.
Note that the total value of the investment grows from the $10,000 initial investment to $11,640.28 during the 5 years studied for an annual growth rate of 3.08%. The yield varies, due to the unbalanced payments and GBP to USD conversion rates. However, the yield has doubled in the period studied, ending at 8.14%. The effects of the Great Recession in Europe are evident, with the bottom, 11/19/2008, providing a -38.7% loss. It is during times of global financial distress such as has been displayed that the diversification of Vodafone makes it resilient. Remember, Verizon Wireless suspended paying its dividend to its owners in 2005 and only restarted it this year.
I have graphed these results on the chart below:
Conclusion: I believe there is ongoing consolidation in the global telecommunications market. In order to survive, companies such as Verizon and Vodafone have pooled their resources to compete with other global players, such as AT&T (NYSE:T). Many European telecommunications companies, such as France Telecom S.A (FTE) and Telefonica SA (NYSE:TEF) pay large dividends, but have watched their stocks tank over the last 5 years, but especially over this past year.
Vodafone's chart is much better, due to its global diversification, especially with Verizon Wireless in the United States.
This information is presented for you to begin due diligence on Vodafone stock. There are many issues, including the European financial crisis, which could affect your investment. I have included it in my global telecommunications portfolio and am pleased with it so far.