Verizon (NYS: VZ) Wireless will not pay an annual dividend to Vodafone and Verizon Communications, according to Verizon Communications CEO Lowell McAdam, because the carrier might need the cash to buy spectrum or make an acquisition.
In an interview with the Financial Times, the newly minted Verizon CEO said the carrier will not return to the policy of annual dividend payments it made to the parent companies from 2000 to 2005. Verizon Wireless -- in which Verizon Communications owns 55 percent and Vodafone owns 45 percent -- has not paid a dividend since 2005, but said in late July that it will pay a $10 billion dividend on Jan. 31, 2012. Verizon Communications will get $5.5 billion, and Vodafone will get $4.5 billion.
"There is not an ongoing [dividend] policy because we may end up buying spectrum, and we may end up buying another company and if there are needs for that cash in Verizon Wireless, that is where it'll be generated, and that is where it'll be spent from," McAdam said. "We're going to look at it [the dividend] every year and we'll decide as we go along."
The comments are likely to disappoint Vodafone investors, but McAdam sought to underline the fact that Verizon and Vodafone have forged a much closer relationship over the past several years. The companies have partnered to serve multinational customers and provide enterprise services.
But he said not to expect any kind of merger between the two telecommunications giants in the near term.
"I wouldn't rule [a merger] out, but I also wouldn't tell you that it's something that's on our immediate horizon either," he said. "We've got big businesses to run and we're going to see how these overlaps [between Verizon Communications and Vodafone] have come and interests play out over the next couple of years."
McAdam also warned that more government regulation of the wireless market, particularly in light of the Justice Department's lawsuit to block AT&T's (NYS: T) proposed $39 billion acquisition of T-Mobile USA, could lead to companies pulling back on capital investment.
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