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Monday 22 September 2014

After the Verizon deal, what should Vodafone shareholders do next?

Published 02/03/2014 | 02:30

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If you're one of the 400,000 Irish Vodafone shareholders, you'll start to receive your payout under the telco's latest Verizon deal in a few days. Cash payments will be issued to shareholders from March 4. As for the Verizon shares you are getting under the deal, they have already been credited to your shareholder account – and statements outlining your entitlement to those shares will be sent out this week.

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So you now have two dilemmas: should you hold on to your Verizon shares or cash them in? And where should you reinvest your cash payment if you wish to do so – as well as the proceeds of any Verizon shares if you decide to sell them?

The Sunday Independent lined up some top investment experts for their advice.

* Cash in or hold on?

Most of the Irish people who are getting Verizon shares under the latest deal bought Eircom shares in 1999.

"For many people, this was the one and only time in their lives that they proactively bought an individual share," said Eoin McGee, principal of the Kildare financial advisers, Prosperous Financial Planning. "If you fall into this bracket, then I recommend that you sell the Verizon shares now. Otherwise, you will be entitled to a dividend (on Verizon shares) each year. This dividend will be subject to income tax and will therefore be minimal."

The prospects for Verizon going forward will ultimately determine how well its shares perform – and are another thing you should take into account when deciding whether or not to hold on to those shares. Some view Verizon as a solid business but others believe its future could be shaky. "I think there will be radical change in telecoms over the next few years – and the age of mobile phone companies may be changing into more of an internet structure," said Justin Urquhart Stewart, co-founder of the London investment managers, Seven Investment Management. "That could bode badly for Verizon."

Urquhart Stewart believes shareholders should cash in on their Verizon shares.

"Verizon shares will only be another risk to worry about, particularly as they are in a different currency – that is, US dollars," said Stewart.

John Goodall, private client research manager with the London managers, WH Ireland, said the "most sensible course of action" was for investors to sell out of Verizon. "Whilst exposure to the US is sensible, it is better to achieve this through US equity funds," said Goodall.

* Where next?

If you decide to sell your Verizon shares, you might consider reinvesting the proceeds elsewhere. You might also be mulling over reinvesting the cash payout you're about to get under the Verizon deal. If this is the case, you could be on the hunt for shares which deliver a steady dividend – as Vodafone shares do.

"If you want to buy another individual share, you should be looking for the large multinational blue-chip companies," said McGee. "The reason for this is that they typically pay a rising dividend and some of these companies would not have cut their dividend in over 30 years. The companies that tend to fall into this category are the likes of GSK, Microsoft, BP and British American Tobacco."

Urquhart Stewart said some of the major oil companies "will be good dividend payers – but there are risks there."

Goodall is cautious on the big oil stocks. "BP and Shell are finding it tough going at the moment to increase production," said Goodall. "A decline in the oil price would make them vulnerable."

The British energy giant, Centrica could be worth investing in, along with the multinational pharmaceutical, GlaxoSmithKline, and the home entertainment company, BSkyB, according to Goodall. "We think the share price reaction to the potential changes which the British Labour Party may make to reduce energy bills has been overdone and that Centrica offers decent value," said Goodall. "GlaxoSmithKline has arguably the most secure dividend of the leading FTSE companies. BSkyB is well positioned in the sector."

You could of course reinvest your cash payout in Vodafone or Verizon shares.

"Vodafone dividends have been consistent and rewarding and the share price has also been on a steadily rising trend over the past few years," said Rory Gillen, who runs online investment newsletter GillenMarkets.com. "Verizon also offers a steady and rising dividend with Value Line forecasting that the shares should provide a 4.3 per cent dividend yield in 2014. So long as dealing costs aren't prohibitive compared to the amount of monies you have to reinvest, it may make sense to simply buy more of each share with the cash you receive."

* Caveat emptor

Be careful how you reinvest your cash payout – or Verizon shares, should you decide to sell them. "To hold less than a handful of stocks is, in my opinion, more like betting than investing," said McGee. "Your average retail investor would be better served by investing in a dividend or high yield fund. What people should be looking for is funds with the word dividend, income or high yield in their name."

An exchange traded fund (ETF) – essentially a basket of shares – or investment trust could be worth considering, according to Gillen. Both investments allow you to diversify your investment so that not all of your eggs are in the one basket.

"There are many good quality, dividend-paying exchange-traded funds and investment trusts that provide such diversification at low cost," said Gillen.

Some products tipped by Gillen include the SPDR Emerging Markets Equity Income ETF and the global equity investment trust Murray International, which is managed by Aberdeen Asset Managers. Be sure to understand any risk you are taking – as well as the amount of tax you'll be hit with – if reinvesting your payout under the Verizon deal.

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