Vodafone is the income fund’s best friend. In the absence of BP dividends, Vod’s payments pumped more than any other UK company into the hands of us grateful shareholders last year. Last week the interim dividend was raised by 7.2 per cent, and the target of 10.2p for the full year was repeated. The cash, along with some upbeat comments from the CEO, helped soothe the pain of some pretty bleak results.

The numbers are close to impenetrable to ordinary mortals (“loss per share” 4.01p, “adjusted earnings per share” 7.86p, for example) but never mind, Vod is among the most researched stocks in the world, so the analysts can guide us. Well, up to a point. The key question is whether that magnificent dividend is sustainable.

Vodafone’s most attractive asset is its 45 per cent stake in Verizon Wireless of the US. It’s going pretty well but Verizon, which owns the rest, calls the shots. The day before Vodafone’s results, it popped out an unexpected $8.5bn Christmas dividend. That’s less than last year, and there’s zero visibility about its intentions. Ominously, Vodafone has already decided to use most of its £2.4bn share for a buy-back rather than pay another special dividend, thus rewarding departing shareholders at the expense of those remaining.

The businesses Vodafone can control are mostly in various states of decline. A scary little analysis from Bernstein argues that its major competitors all have fixed line businesses, allowing them to offer total telecom packages. The research concludes that “Vodafone has no structural solutions for its position as a wireless only player in an increasingly integrated European world.”

Which brings us back to that precious dividend. Bernstein calculates that free cash flow (ex-Verizon Wireless) will only just cover the proposed payout this year. The prospects are for increased competition and more pressure on margins. It may be that Verizon decides to keep paying big dividends (it also needs the money) which will allow Vodafone to pass them on, but this is not a base on which to build a truly sustainable income stream.

A decent period of silence

Never underestimate the value of the contra-indicator. In their day the NIESR and the CBI were both worth listening to, if only to expect the opposite to happen. The all-comers’ award is still held by the 364 economists who urged a U-turn in 1981 from the painful policies imposed by Geoffrey Howe. He ignored the chorus of disapproval, and the result was a quarter-century of sustained growth.

It’s not yet a month since David Cameron told us how the good news on the economy would just keep coming. Since then there’s been an unrelenting diet of disappointment, culminating in the Bank of England governor’s “blood, toil, tears and sweat” presentation with the Inflation Report last week. We know that forecasting is difficult, expecially for the future, but we should have known that our dear leader was asking for trouble. We can only hope the governor is now wrong in the opposite direction.

Hands off our RPI!

The Retail Prices Index is under threat. Not the prices themselves, you understand, which continue to rise briskly, by 3.2 per cent in the year to October, but the RPI itself. It’s under fire from the purists at the Central Statistical Office who point out that its quirks and anomalies cause it to overstate inflation.

They are doubtless quite right, although if it caused a consistent undershoot, their political masters might have suppressed this outburst of academic rigour. Inflation, a general change in the level of prices, is easy to define and hard to measure. Nobody’s cost-of-living looks exactly like the RPI, but however imperfect, it is generally accepted as a reasonable way to measure the dwindling power of the pound in your pocket.

Both Labour and the Conservatives have tried to steer us towards the Consumer Price Index, which consistently (and conveniently) lags the RPI. The CPI is a better measure of changes in shop prices, but it is further from the cost-of-living yardstick we need. The CSO claims it has not yet decided to purify the RPI, and is asking for views before the end of the month. Here’s one: leave it alone.

This is an updated version of my column from last Saturday’s Financial Times

http://www.ft.com/cms/s/0/37d21db0-3005-11e2-891b-00144feabdc0.html#axzz2CgTGrweX

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