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Investors fright, suppliers delight

  • Posted by Tony Poulos
  • December 12, 2012 10:11 AM GMT
  • s
Diverting shareholder dividends to fund infrastructure is always a bold move, but in an industry with floundering share values, questions are bound to be asked.
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Deutsche Telekom stunned investors yesterday by announcing it would cut its dividends for the next two years to help finance a massive €30 billion three-year investment plan.

It claimed the plans lay the foundation for future growth with the majority of funds being ploughed back into network upgrades in Germany and with T-Mobile in the USA. For investors it means cuts in their dividends from €0.70 in 2012 to €0.50 for 2013 and 2014.

That is a substantial percentage in anyone’s language and does little to restore the investment community’s faith in the communications sector which, it seems, has been out of favor for some time. There is no question that the long-term viability of companies like Deutsche Telekom is reliant on constant investment in infrastructure and IT systems, but it does little to placate those expecting a solid dividend in return for stagnating share prices.

As always, there are two sides to the story, and for the equipment vendor community any news of increased expenditure in their direction is good news for them. Perhaps investors would like to hedge their bets by buying stock in those firms. But, then again, maybe not.