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Vodafone is “one of the world’s leading mobile communications providers, operating in 26 countries and partnership with networks in over 55 more” (Vodafone through the years 2016, para. 1). The organization is located in Newbury but is well-known all over the world. It has more than 400 million clients, and 13,000 employees work in the UK. Vodafone is focused on the delivery of innovative products and services. It pays much attention to the customers and does its best to provide them with high-quality communications.
Vodafone’s history starts in the 1980s. It is connected with Racal Electronics because its subsidiary turned out to become a starting point of the provider’s evolution. The company had several different names and turned into Vodafone Group Plc only in 2000. During the last five years, the organization did not stop improving its performance and implemented numerous changes. In 2011, it launched JustTextGiving and Freebee Rewardz, which provided charity organizations with the fundraising text code and general clients with an efficient rewards scheme. Except for that Vodafone Guardian for parents and their children was created to control the content of information available. In 2012, it acquired a company that provides fixed and mobile services, improved cooperation with Telefónica UK, and made a step forward to the creation of the single national grid. Vodafone Euro traveler and Vodafone Red were launched to enhance tariffs for communication with foreign countries and allow unlimited calls, texts, and loads. In 2013, the BlackBerry Z10 entered the market, the Red Freedom Freebee was created, network investment boosted, and a 4G network was launched in the capital. In 2014, retail expanded as well as the 4G network. Vodafone WorldTraveller and the Rural Open Sure Signal program were provided. New technology (Voice over LTE) was developed. A year ago, it was the 30th anniversary of the first call made with the help of Vodafone (Vodafone through the years 2016).
As the company introduced numerous innovations during the last several years, its finances were affected. However, it cannot be claimed that Vodafone lost its savings and stop being profitable as the company followed efficient strategies. All in all, organizational revenue increased by £2,000 million in 2015 (in comparison with 2014) while expenditures increased by approximately £1,000 million. Still, alteration in taxation turned out to be advantageous for Vodafone, as the organization reduced its expenditures greatly. As the company faced expansion and employed new people, its staff costs increased. However, improvement in services and new opportunities provided for customers allowed this firm to remain competitive and hold a stable position among the industry leaders. It should be also mentioned that enhancement of operations led to the reduction of expenditures connected with the loss on disposal of property. Vodafone reduced investments by almost £100 million, which provided an opportunity to save this money for other operations. Still, the company’s stakeholders are likely to remain loyal, as it provided more possibilities for charity organizations and made substantial investment previously with the expansion of retail. In the previous year, Vodafone spent more on machinery, which allowed the company to improve existing products but cut research and developmental funds, and no extreme innovations were made. However, such an approach may be beneficial for now as the company’s fees increase each year, and it needs some time to stabilize the situation efficiently (Vodafone Group Plc 2015).
Many companies in the UK are pressured to make sure their dividends are high even though their performance and income worsened. Nowadays, the biggest organizations provide up to 70% of their earnings for dividends, which is rather critical (Canaccord Genuity 2016). Focusing on the security of dividends, Canaccord (2016) encourages clients to be ready to make difficult decisions following the expected cash flow. It claims that they need to be sure of the possibility of shareholder payments that is why Vodafone is not the company to be trusted in this framework.
Of course, Vodafone itself does not support such a position and tends to prove its sufficiency by a consistent dividend policy. The dividend is seen as the main element of shareholder returns, and they increase for a 2.0% increase year-on-year, which is beneficial for this population. The organization is one of the largest dividend payers that returned more than £13 billion to shareholders during three years (Vodafone Group Plc 2015). However, it cannot be denied that with the implementation of the new investment program, capital expenditure increased as well. Such tendency supports the position of Canaccord, as it cannot be proved that Vodafone will be able to provide all its shareholders with constantly rising dividends.
The company is trying to do its best to attract ordinary shareholders and help them to manage their dividends. In this framework, a Dividend Reinvestment Plan was developed. It is claimed to allow “holders of ordinary shares who choose to participate to use their cash dividends to acquire additional shares in the Company that are purchased on their behalf by the Plan Administrator through a low cost dealing arrangement” (Dividends 2016, para. 7). They need to get a Shareholder Reference Number to enter the system and become able to manage their dividends. Such an approach ensures security for both shareholders and the organization.
Needless to say that Vodafone implemented numerous changes on its way to enhancement. Various situations and events influenced its operations, allowing the company to reach its today’s state. For example, at the very end of the 20th century, there were only a couple of interim dividends (of 0.624p and 0.648p per share) with no final one. In 2012, a special dividend was added to the interim one in respect of the Verizon Wireless distribution (Dividends 2016). The company is targeted at the maximization of shareholder value and all alterations it implements are made to support and streamline it. Annual increases in the dividend are likely to allow Vodafone to reach its goal. The amount of dividend increased by about £1 billion equity dividend and reached almost £3 billion in 2015, increasing shareholder value. However, Connington (2016) emphasizes that the situation is likely to alter this year. Organizations are at risk of a dividend cut because of the raised payout ratio. Problems with cash flow are expected to become worse. Cashflow returns will decline because debt exceeds earnings. Vodafone’s dividend yield is 5 while its cover is only 0.5. The fact that the dividends are so uncovered may make people who used to rely on Vodafone for income change their opinions. In this way, while the company is speaking about constant dividend increases, it can face dividend cuts that affect shareholder value adversely. Such movements may be not critical for the long term, but they are mainly considered to be negative by investors.
Reference List
Canaccord 2016, Six investment market drivers for 2016 #4 – Dividend security, Web.
Canaccord Genuity 2016, Web.
Connington, J 2016, Safe haven Vodafone among FTSE 100 companies at risk of dividend cuts, Web.
Dividends 2016, Web.
Vodafone Group Plc 2015, Full annual report, Web.
Vodafone through the years 2016, Web.
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