Vodafone’s dividend has cracked under the strain of falling revenue, soaring spectrum costs, and an €18.5bn acquisition, in a grim reality check for Europe’s struggling phone industry.
Slashing the dividend by 40% to 9 cents a share, reversing chief executive Nick Read’s goal to keep the payout unchanged, will come as a particular blow to the many thousands of Irish shareholders of Vodafone.
Irish shareholders were offered an exit three years ago but many held onto their shares for the dividends.
It is the first cut since the company introduced dividend payments in 1990 and the shares fell by 3%, meaning that the telecoms giant has now lost a third of its value in the past year.
The move allows Mr Read to conserve cash as sales in major markets come under sustained attack from rivals offering no-frills contracts.
Vodafone is gearing up to spend billions of euros on mobile network upgrades and the airwaves needed for the next generation of ultra-fast wireless services.
Vodafone’s organic service revenue fell 0.6% in the fourth quarter from a year earlier, versus the 0.7% drop forecast by analysts in a company-compiled consensus, as sales declines worsened in Italy and Spain.
The measure strips out the impact of merger and acquisition activity and currency fluctuations to present performance on a comparable basis.
Vodafone cut the dividend because of lower revenue forecasts, costly auctions of mobile spectrum, and risks such as global trade tensions and Brexit, Mr Read said.
“There could be further downsides ahead of us” and “on that basis you want to make sure you have sufficient headroom.”
The company is aiming to return to revenue growth by the July-to-September quarter as it accelerates a digital overhaul, simplifies its operations, generates better returns from its infrastructure, and continues to sell assets.
With Europe’s phone companies fighting for customers with steep discounts and all-you-can-eat data packages, revenue growth has been elusive and shares have tumbled, leaving reliable dividend payouts as the remaining bright spot for investors. Now even those are in doubt.