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Russian telecom giant VimpelCom Limited (VIP - Snapshot Report) slashed its annual dividend payout, which sent the stock price spiralling 12.81% in Tuesday trade on Nasdaq. We believe this unexpected news triggered the negative reactions from stockholders.

The Russian carrier recently announced that its supervisory board has approved an annual dividend of 3.5 cents per share, which is way below its previous guidance of 80 cents. The supervisory board even cancelled the final 2013 interim dividend of 45 cents per share − declared during the third quarter financial results.     

The wireless provider has been reeling under debt pressure owing to aggressive acquisition activity in Asia, Africa and Europe. Its net debt stood at a whopping $22.5 billion at the end of third quarter 2013. The dividend cut is aimed to restructure its leveraged position. However, it will significantly reduce its shareholders’ wealth.      

VimpelCom, the third largest wireless operator behind Mobile TeleSystems and MegaFon, had 219 million subscribers at the end of third quarter 2013. However, both Mobile TeleSystems and MegaFon pay higher annual dividends, which make them better value stocks than VimpelCom.   

VimpelCom will continue with its new dividend policy until it manages to lower its net debt to EBITDA ratio to under 2x times. The company aims to cut the said ratio to 2.3 by the end of 2014.

VimpelCom reported weak third quarter 2013 results with both top and bottom line declining on an annualized basis owing to sales drop in Asia, Africa and Russia. Net cash flow from operating activities was also weak, declining 16% compared to last year.

VimpleCom currently carries a Zacks Rank #4 (Sell). However, better ranked stocks in the same industry include China Unicom Hong Kong Ltd. (CHU - Analyst Report) South Korea Telecom Company Ltd. (SKM - Analyst Report) and BT Group Plc. (BT - Snapshot Report). China Unicom and South Korea Telecom Company currently carry a Zacks Rank #1 (Strong Buy) while BT Group carries a Zacks Rank #2 (Buy).

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