Announcement comes despite earlier comments from U.S. mobile operator that it would prioritise paying down debt.
Verizon Wireless, a joint venture of Verizon Communications Inc. and Vodafone Group PLC, will pay out $7 billion to its owners before the end of next month.
Verizon, which owns 55% of the partnership, has been publicly pushing Vodafone to sell its 45% stake in the mobile phone company. The distribution comes as a bit of a surprise as Verizon chief executive Lowell McAdam hinted at a meeting with investors last month that the company might not pay a dividend to its two owners this year.
Mr. McAdam said the company was coming up on a “lean” year for Verizon Wireless dividends, and that the priority for Verizon Wireless’s cash flow will be to pay down the $5 billion in debt coming due at the unit between now and the middle of 2014 before making payouts to owners.
The comments were reported in a note by J.P. Morgan Chase & Co. analyst Philip Cusick, who hosted the meeting in late April, and confirmed by a person familiar with the matter.
Although Verizon agreed to pay a dividend this year, it is less than recent distributions. The U.S. carrier bottled up the venture’s cash for more than half a decade until paying out $18.5 billion last year in two separate payments.
Based on their ownership, Verizon Communications will receive $3.85 billion in cash and Vodafone will get $3.15 billion. The dividend will be paid on June 25, according to a regulatory filing.
Verizon’s chief financial officer is scheduled to speak at a J.P. Morgan conference Tuesday morning. RBC Capital analyst Jonathan Atkin said the payment made sense because it helps support the payment of Verizon Communications’s own dividend to shareholders. He noted it isn’t clear if the Verizon Wireless payout has any bearing on a deal to end the joint venture.
CitiGroup analysts said the timing of the dividend payment suggests a deal between the companies isn’t imminent, but they still ascribe a 55% probability of a buyout in the 12 months.
The dividend represents a significant source of funds for Vodafone, to use for investments or to return cash to shareholders.
Verizon Wireless was formed in 2000. While the joint structure allowed the partners to pool assets and share costs at a time when wireless was still relatively new, it has become awkward now that the business is taking the lead role in growth for telecom companies.