Around two thirds of institutional investors believe Vodafone Group PLC (LON:VOD) should cut its dividend, a survey by JPMorgan Cazenove has found.
The investment bank's survey of buyside clients, which includes asset managers, hedge funds and other institutional investors, was launched with the aim of gaining a “better understanding what investors think about Vodafone’s operational, dividend and balance sheet outlook”.
Excluding those who have a “directional view” on the shares, 71% of investors believe the telecoms giant should cut its dividend, a proportion that falls to 61% if including all the 130 investors polled.
Among those investors that are uninvested on the shares, index-weight or underweight, 77% would welcome a cut to the payout. Meanwhile, opinions are much more divided among investors who are overweight the stock, with 38% favouring a cut, 49% are opposed and 14% are unsure.
In the event of a cut, half of investors believe the dividend should be rebased at least 30%. With strong backing for the FTSE 100 group to reduce leverage to less than 2.5 times underlying earnings (EBITDA), supported by 63% of investors. Some 84% want to see management sell off some assets.
If Vodafone does effect a dividend cut, 63% of investors in the survey believe the company’s shares will fall on “day one” of a potential cut but, “more interestingly”, the JPMorgan analysts said, almost the same amount believe the stock will finish up six months thereafter, with a similar ratio across investors both over- and under-weight the stock.
The survey also found that only 2% of investors have fund rules that require them to sell some/all of their shares in the event of a dividend cut.
“This suggests the technical overhang of a cut may be much less than feared.”