Why This European Telecom Is A Screaming Buy

Vodafone VOD said yesterday at the annual shareholder meeting yesterday the company is set to resume receiving dividend payments from Verizon VZ starting next year. This is massive news for Vodafone shareholders, as the stock price is not really reflective of receiving a dividend from Verizon for its 45% ownership stake in Verizon Wireless. Chairman Sir John Bond said that it will resume receiving payments next year, seven years after it last received a payout from Verizon. Verizon has said that it will eventually make payments to Vodafone for the ownership stake, but it was going to spend money to built out its network first before making any dividend payments to Vodafone. Vodafone and its shareholders have not been rewarded for seven years for its 45% stake in Verizon Wireless, and even were tried to be bought out in 2006 for its stake, but the offer was ultimately rebuffed. At the meeting, Sir John said “The prospect for dividends is now very good, with Verizon's management confirming a pay-out in 2012.” He told the Financial Times later: “The policy not to sell five years ago has been vindicated.” Andy Halford, Vodafone's finance director, said the stake in Verizon Wireless is now worth approximately $65-$70 billion, up from $20 billion in 2001. Now the major issue is how to unlock the value from the Verizon Wireless stake, as Vodafone's market cap is just $137 billion. The stake in Verizon Wireless is more than 50% of its market cap. Trading at less than 9 times forward earnings, and sporting a 7.2% dividend yield, shares of Vodafone are extremely cheap at these levels, and are not reflective of a dividend payment from Verizon. Major players on Wall Street are in this name for that specific reason, like David Einhorn of Greenlight Capital, Dodge & Cox, FMR, and others. As analysts begin to realize that a dividend payment is not only likely, but imminent, the share price target is likely to be ratcheted up from the sell-side. When Verizon asks "Can you hear me now?", Vodafone and its shareholders will be the one answering their phones with a cash register ringtone. ACTION ITEMS:

Bullish:
Traders who believe that Verizon will pay the dividend next year might want to consider the following trades:

• Go long Vodafone on any dips. At $137 billion in market cap, the stake in Verizone Wireless is clearly not reflected in the share price on a sum of the parts basis.

Bearish:
Traders who believe that a dividend payment will come later than expected may consider alternate positions:

• If Verizon decides to hold on for another year on the dividend payment resumption process, Vodadone is likely going to take a hit.

• Verizon would be a beneficiary, as it will hold onto the cash payment for another year.

Neither Benzinga nor its staff recommend that you buy, sell, or hold any security. We do not offer investment advice, personalized or otherwise. Benzinga recommends that you conduct your own due diligence and consult a certified financial professional for personalized advice about your financial situation. Bullish-VOD's stock price is not reflective of receiving the dividend Bearish-VZ will have to start paying out billions in cash every year to VOD, with a hefty amount coming next year