Bankinter | Telefónica (TEF) will present its new Strategic Plan tomorrow, 4 November, replacing the previous 2024/2026 plan. In this plan, Telefónica could announce a dividend cut from the previous €0.3 per share for the years covered, according to media reports.
Bankinter analysis team’s view: We believe that the probability of this happening is high. According to statements by its CEO, Telefónica has lofty ambitions, with the intention of actively participating in a possible European consolidation (which would be buying a company), investing in technology and reducing costs to gain efficiency, objectives that it must reconcile with a reduction in debt.
Given this possibility, we already downgraded Telefónica’s recommendation from Buy to Neutral on 6 October: “The Strategic Plan will likely focus on three areas: consolidation in Europe, strengthening Telefónica Tech in the cybersecurity business and simplifying the group’s structure to gain efficiency. Until then, we believe that the stock will remain on hold until the outlook for dividends and financing of the plan’s objectives is known. Until then, we are downgrading our recommendation to Neutral (from Buy).” Telefónica offers a higher dividend yield than its European peers: 6.8% vs Deutsche Telekom 3.3%, Vodafone 4.2%, Orange 5.4%, KPN 4.4%. To meet its potential objectives, Telefónica must strengthen its balance sheet, free up cash flow for investments and maintain financial discipline to avoid a downgrade of its credit rating. According to the media, Telefónica’s dividend yield could be around 5%, which means a dividend of €0.2/share. Currently, Telefónica’s payout (% of net profit allocated to dividends) is >100% and equivalent to 15% of its cash flow before investments.
