Fears for Vodafone dividend after shares collapse

VODAFONE faces a battle to protect its £3.5bn dividend as it grapples with debts, costly network investments and price wars.

The telecoms group is under pressure to spell out how it will maintain its payouts after launching a takeover of Liberty Global’s European cable assets, a move that has taken its debt pile to around £46bn.

It has also just spent £2.1bn buying airwaves for 5G services in Italy, in an auction that proved far more expensive than industry figures expected.

Analysts have raised doubts about its growth prospects, warning the company faces intense price competition in Italy, Spain and India.

Since the start of the year, the share price plunged more than 38pc to nineyear lows, wiping £24bn off its value. Company veteran Nick Read (pictured), who took over from former boss Vittorio Colao last month, will present his first quarterly results as chief executive on Tuesday. He is expected to set out his vision for the group, including how it will take advantage of the Liberty Global deal, continue cutting costs and drum up cash from asset sales.

One investor told the Mail there were questions over whether Vodafone would carry on paying its current dividend.

However, talks with management about this had proved frustrating, the investor added.

The Vodafone dividend has long made the company an attractive investment to British savers who have benefited from a steady income stream.

Analysts have warned Vodafone faces difficult decisions if it wants to protect the dividend, which the company has not cut since first paying one in 1990.

But in a note, JP Morgan argued a cut could make sense if the company wants to pay down debts quickly and asset sales and cost-cutting failed to raise enough cash.

Russ Mould, investment director at broker AJ Bell, added: ‘Concern about the dividend is one of the reasons Vodafone shares have been such a horror this year. The company is pointing to cash flow but what has got people spooked is the Liberty Global deal.’

‘They are looking at it and saying “You already had a lot of debt and that is now going to take it even higher, and at a time when general borrowing costs are going up not down”.’

Speaking to investors in September, Read dismissed fears about the dividend and claimed the company had the cash flow to support it.

He explained that Vodafone would aim to deliver a cash flow of nearly £15bn over three years, with around £10.5bn taken by dividend payments and £4.5bn left free to spend on airwaves needed for next-generation 5G mobile networks.

However, the company says it only expects an annual spend of just over £1bn on 5G spectrum, or around £3.1bn over the period.

Speaking in New York, Read told investors: ‘We’re confident in the dividend policy that we have and that remains the case.

‘We did the Liberty Global transaction. Then we said we will de-lever over time, through two levers. One is the expansion of earnings; and the other one is disposal of assets.’

He said assets that could be sold included the company’s signal masts and towers.

Shares closed 2.1pc, or 3.16p, lower at 143.92p.