By David Latona and Jesus Calero
MADRID (Reuters) -Telefonica shares fell by 11% on Tuesday after the Spanish telecoms giant said it would halve its dividend next year as part of a new strategic plan to reduce rising debt and prepare for M&A opportunities.
The shares underperformed a 1.3% drop in the Spanish blue-chip index at 1100 GMT, recording their biggest daily fall in the past five years and erasing almost all the gains since CEO Marc Murtra took the helm in mid-January, LSEG data showed.
The company intends to pay a dividend of 0.15 euros ($0.17) per share in 2026, according to the plan, allowing it to reduce its net debt to annual core earnings ratio to 2.5 times, from 2.9 times now.
Telefonica said its debt rose in the third quarter to 28.2 billion euros, from 27.6 billion euros in June, citing dividend payments, investments and mounting costs.
Lower debt would guarantee the company would be ready to seize acquisition opportunities as they arise and generate value for shareholders, Telefonica said.
According to an Oliver Wyman report published on Tuesday, Europe’s telecoms industry is on the verge of the biggest M&A wave in decades due to market maturity and limited growth, industry fragmentation, the need for national data sovereignty and increasingly favourable regulatory attitudes toward consolidation.
Telefonica’s plan also forecasts annual revenue and adjusted core profit growth rates of between 1.5% and 2.5% until 2028 and between 2.5% and 3.5% for 2028-2030.
The company intends to boost free cash flow by reducing operating expenses by a quarter, including through using AI in customer services, and lowering spending on capital.
DBRS Morningstar analyst Javier Correonero described the new plan as underwhelming, as core earnings growth was pegged to revenue growth – without margin expansion – and absolute operating expenses were still on the rise.
Correonero added he was sceptical about the guided step‑up in growth for 2028-2030, since real value creation required market consolidation with minimal remedies.
He said Telefonica’s lack of growth meant the company had to choose between leverage and dividend payouts. “There was no room for both,” he said.
($1 = 0.8575 euros)
(Reporting by David Latona, Jesús Calero, Inti Landauro and Andres Gonzalez; Additional reporting by Emma Pinedo; Editing by Kirsten Donovan and Ros Russell)
