Telefónica Shares Plunge After Slashing Dividend in New Strategy

A Telefonica store in Madrid. Photographer: Paul Hanna/Bloomberg Photo by Paul Hanna /Bloomberg

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(Bloomberg) — Telefónica SA shares fell the most in more than five years after Spain’s largest telecom operator by revenue announced it will slash 2026 dividend by half. 

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The Madrid-based telecommunications group will cut its shareholder payout to €0.15 per share next year from €0.30 for 2025, according to a regulatory filing ahead of its investor day on Tuesday. The change is part of Chairman Marc Murtra’s new strategy that calls for redirecting cash toward core telecom capabilities, as well as new initiatives such as defense and cybersecurity.

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Shares fell as much as 9.8% in Madrid, the most since May 2020, wiping out all growth this year. 

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The change in dividend policy marks a major shift from Telefónica’s long-standing focus on shareholder distributions. Murtra, who took over in January, argues the company can allocate its cash more efficiently by reinvesting it in the business, including possible acquisitions. He has also called for consolidation in Europe’s telecommunications industry.

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Telefónica repeated an appeal for consolidation in a Tuesday investor presentation, although it was light on details about how the company plans to transform its business. 

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Telefónica touted an efficiency plan that will rein in growth in operating expenses through network and energy cost optimization, using AI in customer service, real estate sales and simplifying the business. 

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Adjusted earnings before interest, taxes, depreciation and amortization are expected to grow by 1.5% to 2.5% annually in the next three years and accelerate in 2028 to 2030, according to the strategy. Free cash flow is seen at €2.9 billion ($3.3 billion) to €3 billion next year, and the company will keep capital expenditure in line with previous commitments.

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Analysts have flagged that savings from reducing dividends could be limited. The “key is what the cut would fund,” Deutsche Bank AG analyst Keval Khiroya wrote in an email to clients last week, after Bloomberg reported the plans. “We view any balance sheet repair without an actual in-market deal announcement as negative,” he said.

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Telefónica on Tuesday also said that it saw potential synergies of €18 billion to €22 billion through select acquisitions in its core markets. Murtra’s push for consolidation has helped fuel rallies in the shares of potential targets, including Vodafone Spain owner Zegona Communications plc and Germany’s 1&1 AG. 

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Telefónica has roughly halved its debt over the past decade, but remains one of the most leveraged telecom carriers in Europe. The company holds the lowest investment-grade credit rating from three rating firms.

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Adjusted Ebitda in the third quarter fell 1.5% from a year earlier to €3.07 billion, it said in a separate statement. That compares to an average analyst estimate of €3.05 billion in data compiled by Bloomberg. 

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