Telefónica Cuts Its Dividend, But It Defends That This Strengthens Its Position

Telefonica ever closer to selling its Central American subsidiaryJosé María álvarez-Pallete, CEO of Telefonica

Telefónica’s board of directors has cut the dividend payable in 2021, which will now be made in two payments of 0.15 eur/share in June and December (previously 0.20 eur/share), while the “scrip” option is maintained. The first payment of 0.15 eur/share will be in December 2021.

Telefónica’s Executive Chairman, José María Álvarez-Pallete, has defended the reduction of the company’s dividend, which he considers to be an appropriate price as it maintains a very high dividend yield compared to the Ibex and the sector as a whole.

At the conference with analysts to discuss the group’s first quarter results, Álvarez-Pallete explained that this decision is part of their objective to accelerate their internal transformation process, in which they want to preserve a “strong” free cash flow (FCF) generation and at the same time be capable of investing in the growth part of their business.

Another reason is that, although the company is exploring inorganic alternatives, it wants to reassign capital to seize opportunities as they arise, while continuing to reduce debt. In fact, Álvarez-Pallete recalled that there are still several transactions pending that would trim debt by 9 billion euros.

In this regard, he pointed out that this year Telefónica will also have to deal with different spectrum auctions in three of its main markets (Spain, United Kingdom and Brazil), in addition to the uncertainty still generated by the Covid-19 crisis, despite the fact that the outlook is “positive”.

Finally, Telefónica’s CEO added that the company’s decision on the dividend is also in accordance with its goal of maintaining a “solid” investment-grade rating.