London, April 14. Telefónica announces the most visible and attractive distribution plan on the entire Spanish stock market. During the company's investor day, it promises to pay out a minimum of 1.75 euros per share to each investor starting in 2012.
Madrid, December 14. Same telephone service provider forced to announce cuts to its dividend policy. Communicates to public that it will only pay 1.5 euros per share during 2012 and that shareholders will receive 1.3 euros in cash payments and the rest of the dividend with a buyback of shares for its next stock re-issuance.
All predictions note that Telefónica's disappointing performance figures made the high dividend promise impossible to fulfill. As they are explaining within the company, issues plaguing the global economy and the financial markets have both changed during the past eight months. Although Telefónica president César Alierta has always benefited shareholders by offering a dividend, that policy is now on the ropes as we look ahead to 2013. For this year, many experts are already indicating that the telephone operator could opt for a more flexible policy and support itself via share buybacks and another stock issue.
If Telefónica had not lowered its dividend, it would have had to pay out more than it earned in profits this year. When the telecom announced its plans for the year ahead, investment firms hoped that it would close 2012 with net profits of around 1.95 euros per share. Since then estimation have plunged 20% to 1.58 euros per share. The new pay out strategy will still require Telefónica to dish out 95% of its net profits to shareholders.
The significant dividend reduction and the possibility that results could improve through a managed share repurchase effort could give the telecom some leeway to strengthen their strategy or financials. On the one hand, Telefónica could take advantage of growth opportunities, especially through acquisitions in Europe and Latin America. On the other hand, the lowered dividend could allow the company to continue lowering its debt ratio. It is trying to maintain its debt level between two and two and a half times that of its gross earnings.
