On Monday Verizon Communications Inc. (VZ) CEO Lowell McAdam announced that the company is once again considering buying out its Verizon Wireless partner, the British telecom giant Vodafone Group (VOD). If the deal were to go through, it could put pressure of Verizon’s current dividend payout.
Verizon Wireless is a partnership between Verizon and Vodafone, where Verizon owns 55% of the wireless company and Vodafone owns the remaining 45%. VZ CEO McAdam has expressed desires to buyout the British telecom’s stake in Verizon Wireless for some time; now the company believes it has the strength to complete the buyout.
Analysts have estimated that such a deal would cost Verizon Communications $100 billion. However, many are skeptical that Verizon has the capabilities to complete such a transaction with cash; the company would have to use debt funding to obtain Vodafone’s stake in Verizon Wireless.
This planned acquisition would also result in concerns over Verizon Communication’s current dividend payout. The company needs the cash on hand to cover $6 billion in dividend payments to investors annually. If the deal were to go through, it might put strain on the telecommunication’s attractive dividend payout going forward. If the company were to use debt funding to buy out Vodafone and subsequently cut its dividend payout, Dividend.com might reconsider the company’s “Recommended” rating.
Verizon shares were down 84 cents, or -1.91%, during morning trading on Tuesday while Vodafone shares were down 42 cents, or -1.60%.
Verizon Communications Inc. (VZ) is recommended at this time, holding a Dividend.com DARS™ Rating of 3.6 out of 5 stars. Vodafone Group plc (VOD) is not recommended at this time, holding a Dividend.com DARS™ Rating of 3.4 out of 5 stars.
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