Vodafone's Massive Giveaway

This article has been adapted from our sister site across the pond, Fool U.K.

This week, Vodafone Group (NYS: VOD)  sprang a nice surprise on its shareholders -- and shareholders reacted positively, sending the shares up nearly 5%.

2.8 billion pounds in
Europe's biggest telecom operator revealed that it is set to receive a 2.8 billion-pound dividend from Verizon (NYS: VZ) Wireless.

Vodafone owns 45% of Verizon Wireless, the second-largest wireless carrier in the United States. The good news is that the board of Verizon has decided to pay a $10 billion (6.1 billion pounds) dividend to its shareholders. Thus, Vodafone's share of this bumper payout is $4.5 billion, which is close to 2.8 billion pounds.

2 billion pounds out
What will Vodafone do with this slug of cash, which is due to arrive on Jan. 31?

The good news is that Vodafone has decided to return 2 billion pounds of this cash to its owners. This will arrive in a special dividend to be paid to shareholders next February. The remaining 0.8 billion pounds will be used to reduce Vodafone's net debt.

Vodafone's CEO, Vittorio Colao, remarked: "Our long-term partnership in Verizon's strong and successful wireless business has seen the value of our investment increase significantly over recent years. The dividend from Verizon Wireless allows us not only to reward our own shareholders with an immediate and sizeable cash return, but also to continue to reinvest in our business to improve our customers' experience, further strengthen our competitive position, and create additional value for shareholders."

Big numbers
Despite being an 89 billion-pound behemoth, Vodafone has been pretty sure-footed of late.

Last month, it collected 7 billion pounds in cash by selling its 44% shareholding in French mobile operator SFR to media conglomerate Vivendi. The board of Vodafone voted to use 4 billion pounds of this windfall to buy back 5% of its shares, in order to boost future earnings per share.

What's more, the announcement from Verizon vindicates Vodafone's decision to play the long game in the U.S. cell-phone market. Verizon's $10 billion dividend could be followed by more payouts, thus demonstrating the value of Vodafone's toehold in the United States.

Vodafone shares trade on an undemanding price-to-earnings ratio of around 11, and the company offers a nice full-year dividend.

In my view, the UK's most valuable brand (with 360 million customers worldwide) remains undervalued, with its shares especially appealing to income-seeking investors.

More from Cliff D'Arcy:

At the time this article was published Cliff doesn't own shares of any company mentioned.Motley Fool newsletter services have recommended buying shares of Vodafone Group. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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