Vodafone pays out £6bn but fears grow on margins

Vodafone is to hand out £6bn to shareholders this year thanks to a doubling of its dividend and an increase in its share buy-back programme.

Vodafone is to hand out £6bn to shareholders this year thanks to a doubling of its dividend and an increase in its share buy-back programme.

Arun Sarin, the chief executive, announced the windfall at yesterday's interim results meeting where he also reported a fall in turnover of 1 per cent to £16.8bn, with a similar decrease in group operating profits to £5.7bn.

The half-yearly dividend payment was doubled to 1.91p a share. The company said it expected to raise the final dividend paid at the year-end by a similar amount. This would imply a full-year payout of 4p a share, equivalent to £2bn. The company's share buy-back programme would increase by £1bn to total £4bn for the full year, Vodafone said, giving a final cashback figure of £6bn for the year to March 2005.

Mr Sarin said: "The strong underlying cash flows from the business and our future growth prospects have enabled a re-basing of the dividend and a further increase to our share purchase programme."

In future, the dividend would continue to rise in line with the company's increase in earnings, he added. The doubling of the dividend comes after Vodafone failed to buy AT&T Wireless, the US mobile operator, earlier this year in a $30bn (£16.2bn) bidding war.

Vodafone owns a 45 per cent stake in Verizon Wireless, the rival US mobile operator, and Mr Sarin said there were no other US deals that interested Vodafone. However, the dividend Verizon pays to Vodafone is set to fall by up to £600m from 2006 as the US business concentrates on paying off some of its $18bn of debt. The reduced US income stream would not affect Vodafone's new policy of paying higher dividends to shareholders, Mr Sarin said.

The good news on dividends failed to ignite the company's share price, which fell 0.53 per cent. The market had already anticipated a big increase in the dividend and there are worries that the increasingly competitive conditions faced by Vodafone's operations around the world were eating into profit margins.

Mark James, at Nomura, insisted investors should sell Vodafone shares, saying there were "worrying trends" revealed by the company's earnings before interest, tax, depreciation and amortisation figures.