Verizon Wireless to Pay $10 Billion Dividend

Some of us might see an important implication in the Verizon Wireless decision to distribute $10 billion to its two owners, Verizon Communications and Vodafone. And that observation is that Verizon needs the cash to help pay dividends, because Verizon does not any longer generate the cash to pay its own common dividend, said Craig Moffett, Sanford C. Bernstein & Co. analyst.

'There simply isn't any cash elsewhere in the business to fund the common dividend,' Bernstein said. A rational person might conclude that, over the longer term, something has to change. Either Verizon lowers its dividend, which most would assume is the last thing Verizon would do, or Verizon Communications has to find some way to boost its revenues and profits to maintain the dividend. There might be other short-term expedients, such as asset sales, but that can only go so far.

The other implication is that observers who believe Verizon easily can afford to invest in its fixed line infrastructure increasingly may find that view hard to support, over the long term. A firm that no longer can generate enough internal cash to pay its historic dividend has a problem. Big new investments will require some reasonable expectation of adequate financial return.

To be sure, Verizon Communications reported encouraging results for its second quarter, especially a near return to wireline segment growth. But keep in mind that Verizon is trying to return to a slightly-positive revenue growth position in its fixed-line business.

Verizon Wireless to Pay $10 Billion Dividend