Verizon Wireless, the biggest U.S. mobile service provider, said on Monday it would pay its parents Verizon Communications and Vodafone Group Plc a dividend of $7 billion in June, surprising some analysts who had not expected a big payout.
The dividend comes amid mounting speculation Verizon (New York City, NY, USA) could buy Vodafone's stake in the venture if they can agree on a price. Reuters reported on April 24 that Verizon was preparing a $100 billion bid for the stake but investors have said they expect Vodafone (Newbury, UK) to seek a higher price.
The dividend decision follows recent comments from Verizon Chief Executive Lowell McAdam to JP Morgan analysts that he did not want to pay a premium for the stake and that 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 $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 on Monday. 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 does not think Verizon has an urgent need for cash.
"Despite more contentious commentary from Verizon management it's 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 $8.5 billion payout in the fourth quarter of 2012, which followed with a $10 billion pay-out made in January of 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 pay-out will bring Verizon cash payments of $3.85 billion while Vodafone will receive $3.15 billion, according to the company.
Verizon shares rose slightly in late trade to $53 after closing at $52.55 on the New York Stock Exchange.
(Reporting by Sinead Carew in New York and Kate Holton in London; Editing by Phil Berlowitz, Bernard Orr)