Verizon Wireless to Dole Out $7bn Dividend to Co-Owners

The largest US mobile service provider, Verizon Wireless, will distribute $7bn (£4.6bn/€5.4bn) in dividend to its parent companies Verizon Communications and the UK's Vodafone in June.

According to a regulatory filing, Verizon Communications, which is a majority shareholder in Verizon Wireless will receive $3.85bn payout, while Vodafone will receive $3.15bn.

After the announcement, Verizon shares rose to $53 in late trade after closing at $52.55 on the New York Stock Exchange.

The big dividend payout came as a surprise to many analysts on the back of mounting speculation that Verizon Communications is seeking to acquire Vodafone's 45% stake in the joint venture. According to an earlier Reuters report, Verizon was preparing $100bn bid but investors were expecting Vodafone to seek a higher price.The size of the tax bill for Vodafone in the form of US capital gains, in case of a possible transaction is also said to be one of the hindrances to the deal.

According to an earlier report from Bloomberg citing unnamed sources, Vodafone and Verizon discussed a full merger of the two companies, but negotiations broke down over disagreements on the combined company's leadership and headquarters location, which eventually led to the buyout or partial sale of Vodafone's stake in the Verizon Wireless a more likely outcome.

Verizon made a payout of $8.5bn in the last quarter of 2012 and another payout to the tune of $10bn in January. In the period between 2005 and 2011, Verizon refused to allow dividends from its wireless division as the company said it was planning to it pay down debt and make acquisitions, a move which is widely seen as an attempt to pressure Vodafone out of the joint venture .

The surprise dividend followed recent comments from Verizon Chief Executive Lowell McAdam that he did not want to pay a premium for the Vodafone stakes and the two owners could face a "lean year" in terms of divedend payouts, according to a Reuters report.

Vodafone does not have any control over dividend decision since it is a minority stake holder in Verizon Wireless and only receives a special dividend from the company for its stake in their joint venture.

Verizon is eager to acquire full control over the joint venture as Verizon Wireless added record 2.1m subscribers last quarter and generates a significant earnings margin of more than 41 percent.