US Edition Vodafone
176.15p-2.7
Questor says BUY
Vodafone is hoping to raise the payout by 7pc a year – and some of the fund will also be used in a share buyback. The company is also in the process of selling its Polish operations, which could raise as much as €4bn.
This means that the dividend looks solid – and the group is also expecting to get bumper payouts from its stake in US group Verizon Mobile – possibly as soon as next year. Vodafone’s current dividend yield is 5pc.
There is an issue with taxation in India, which is yet to be resolved in court. The company has filed a petition in the country’s Supreme Court against India’s tax authority, regarding its majority stake purchase in Hutchison Essar in 2007. Vodafone believes that no tax is due on the transaction because it was offshore. The company has not raised provisions for the potential tax – which could be hundreds of millions of dollars.
“All the advice received by Vodafone during, and since, the acquisition is that there is no tax, or therefore penalty, that arises and Vodafone will take all appropriate steps to defend itself and its investors against this latest unwarranted action from the tax authority,” Vodafone said yesterday.
Questor cannot pre-judge the ruling of the Indian court, but it does not hit the investment case for the shares. But it would, obviously, be a disappointment if it went against the group.
Vodafone is a cash-generative business that returns most of its free cashflow to shareholders. Cashflows will increase significantly once the Verizon dividend starts to be paid.
The shares were first tipped at 141¾p on September 27, 2009, and they are now up 24pc compared with a FTSE 100 that is up 18pc.
Trading on a March 2011 earnings multiple of 10.6 times, falling to 10.5 next year, Questor says buy.