Investors have been speculating over Vodafone's future since it announced it was selling its stake in US wireless joint venture to partner Verizon for $130bn.
The UK mobile group has been expanding in Europe, notably with the purchase of Kabel Deutschland, but there have also been suggestions it could be in the sights of another US group, AT&T, following the Verizon deal.
However another effect of the Verizon deal could be Vodafone's dividend position. It is a mainstay of income funds with its yield of around 5%, but on fund manager has sold his stake in the business on the basis it will be losing the cash generated by Verizon Wireless. Michael Clark of Fidelity MoneyBuilder Dividend fund said:
My investment strategy is focussed on identifying stocks which show stability of income and importantly, commitment to dividend growth.
Following the sale of its Verizon Mobile asset, one of its main cash generative assets, I no longer think Vodafone can demonstrate this, and as such, I took the decision to sell out of the stock. Our analysis following the deal has significantly reduced my confidence that a post-Verizon Vodafone will be able to cover its dividend with free cash flow, or sustainably grow its dividend. The type of dividend growth I want in the fund requires earnings growth - ie, not income from debt or asset sales, which often proves unsustainable over the longer term.
Given the unpredictable nature of the telecoms business and the severe pressures within the sector in continental Europe where Vodafone does most of its business, I think Vodafone's previously attractive dividend policy will come under severe pressure following the change in the business's fundamentals.
Vodafone shares are currently 0.8p lower at 225.95p.
