Telefonica Crashes 11% as Dividend Slashed in Shock Strategy Shift

Telefonica SA TEF just handed investors a hard dose of reality. The Spanish telecom giant's stock plunged as much as 11% in Madridits steepest drop since early 2020after the company slashed its 2026 dividend and cut this year's free cash flow outlook. Telefonica now expects about 1.9 billion in free cash flow, down from the earlier 2.6 billion target, and plans to halve its dividend to 0.15 per share next year from the 0.30 previously promised. Chairman Marc Murtra, who took the helm in January, is pivoting away from cash handouts toward reinvestment in the business, including defense, cybersecurity, and core telecom upgrades.

The new roadmap marks a clear reset in Telefonica's capital strategy. Under a revised financial framework, the company forecasts 3.2 billion in free cash flow by 2028a figure roughly 20% below market consensus, according to JPMorgan's Akhil Dattani. Murtra's plan leans on efficiency gains, from AI-driven customer service to network optimization and real estate sales, while keeping capital expenditure steady. Third-quarter adjusted EBITDA fell 1.5% year-on-year to 3.07 billion, narrowly ahead of analyst estimates, and the company expects earnings to rise between 1.5% and 2.5% annually through 2027, before accelerating later in the decade.

Still, Telefonica's leverage problem looms large. Despite cutting its debt nearly in half over the past ten years, it remains one of Europe's most indebted carriers, sitting at the lowest investment-grade rating from major credit agencies. Morgan Stanley's Emmet Kelly noted that the group's debt-reduction target through 2028 could fall short of expectations. Murtra, however, sees opportunity in scaleflagging up to 22 billion in potential synergies through acquisitions and reiterating his call for industry consolidation. If he can pull it off, Telefonica might finally pivot from a dividend story to a long-term growth one.