Spain's Second Largest Company, Telefonica, Cancels Dividend And Share Buyback

Tyler Durden's picture


Up until this point, Europe has been transfixed with severing the linkage between the sovereign and the banking system. This has been a particularly big issue in Spain because as is now well known, its banks are insolvent, yet the country is trying to pass off as not needing a bailout. Of course, if RBS is correct, that is all going to change very soon as the entire country demands a formal bailout. Yet link that has been largely ignored is the link between the sovereign, the financial sector and the broad corporate sector. Because if the first two are imploding, it is only a matter of time before the latter is also dragging into the maelstrom. As of minutes ago, this has just happened, following an announcement by Telefonica, Spain's second largest company (and potentially largest depending on what Santander does any given day), that it has cancelled its dividend and share buyback for the entire year.


Why is Telefonica doing this? Simple - to conserve cash ahead of what may be a sovereign default which will have a huge adverse impact on all Spanish corporations. And where the dividend goes, M&A spending, and CapEx are sure to follow. For the self reinforcing toxic feedback loop that follows look nowhere further than Greece and its destroyed economy.

Look for the IBEX to plunge tomorrow even more on the news as investors finally grasp what is going on.

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Wed, 07/25/2012 - 12:36 | 2649778 localpacific
Wed, 07/25/2012 - 12:41 | 2649792 ihedgemyhedges
ihedgemyhedges's picture

Whoa...................and Bloomberg just had a guy on from Thornburg Funds saying that he had been buying "telecoms and utilities" in Europe that pay strong and growing dividends.  Good call...........

Wed, 07/25/2012 - 12:46 | 2649810 NotApplicable
NotApplicable's picture

So, the Muppet Show is on every channel now, I take it?

Wed, 07/25/2012 - 12:42 | 2649795 Rincewind
Rincewind's picture

And TEF was one of these "dividend kings"... Poof.

Wed, 07/25/2012 - 12:56 | 2649844 MrSteve
MrSteve's picture

The stock is already down 35% this year, so if you mix catching falling knives with high dividend stocks, you just prove the falling knife is sharper than you are. Being oriented towards a dividend payment means being risk-averse. Buying because its cheap is a rooky's mistake.

Who doesn't think the euro and Spain, et al have much farther to fall?

Wed, 07/25/2012 - 13:00 | 2649857 otto skorzeny
otto skorzeny's picture

kind of like the CNBC talking heads hyping BS div stocks like ATT and utilities

Wed, 07/25/2012 - 12:44 | 2649803 Midas
Midas's picture

Ya think the Spanish Government is going to miss those dividend taxes?

Wed, 07/25/2012 - 12:46 | 2649804 Tippoo Sultan
Tippoo Sultan's picture

Logical, as utilities, historically, require large amounts of capital ( i.e., borrowing ). Clearly, TEF expects their borrowing costs to materially increase; as such, dividend disbursement and share repurchases are subordinate to debt service.

Wed, 07/25/2012 - 12:48 | 2649815 buzzsaw99
buzzsaw99's picture

yeah but that huge banco santander divi is probably safe. :snark:

Wed, 07/25/2012 - 12:49 | 2649816 Jason T
Jason T's picture

Spanish Utility company, Iberdrola owns my electric company, NYSEG .. they better not try to raise our electric rates so to help bailout the banks that lent them the money to buy NYSEG in the first place!

Wed, 07/25/2012 - 12:50 | 2649817 Catullus
Catullus's picture

Iberdola has been selling natural gas and electricity retailers in the US markets: NYSEG Solutions. The margins were fine. They needed to monetize assets

Wed, 07/25/2012 - 12:56 | 2649819 Dr. Engali
Dr. Engali's picture

More hoarding that will put further pressure on tax receipts. It's a vicious spiral downward.

Wed, 07/25/2012 - 12:58 | 2649853 youngman
youngman's picture

They probably are not going to be buying that new fleet of GM trucks

Wed, 07/25/2012 - 13:15 | 2649919 zero19451945
zero19451945's picture

They must be having a heart attack over at Seeking Alpha.

They were jizzing themselves over that 14%+ dividend!!!!!

Wed, 07/25/2012 - 13:25 | 2649946 hugovanderbubble
hugovanderbubble's picture



DIVIDENDS ARE UNSUSTAINABLE in current and mid term in most of European Companies.

Wed, 07/25/2012 - 13:27 | 2649951 hugovanderbubble
hugovanderbubble's picture


Banks are the next ones to cut or reduce inminent for 2-3 years...or forever...


Santander,BBVA kaput

Wed, 07/25/2012 - 13:36 | 2649984 youngman
youngman's picture

All that money that Obama was going to make on raising the dividend going to go poof.....Capital gains to I the markets will drop ...

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