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Telefonica cuts dividend target to focus on debt

A man talks on his cell phone outside Telefonica headquarters in Madrid
A man talks on his cell phone outside Telefonica headquarters in Madrid

MADRID (Reuters) - Spain's Telefonica SA trimmed its planned 2012 dividend on Wednesday in a move to keep its debt under control as the telecoms group battles sluggish economic growth in its home market and uncertainty in Europe.

Spain's largest telephone company last month blamed a tough regulatory environment and challenging business conditions for a weak nine-month performance, but had promised to stick to its shareholder return targets.

It now says "significant changes" in financial markets and the economic and operating environment prompted the need to bring forward a more flexible remuneration scheme that had been initially planned for 2013.

Telefonica said it would pay a total 2012 dividend of 1.50 euros ($1.94) per share, down from the 1.75 euros previously planned, and pledged to maintain that in 2013.

"We believe this policy is compelling and compatible with sustained investments and enhances our financial flexibility," Chief Financial Officer Angel Vila said on a conference call.

Spanish companies are struggling to obtain fresh funds in a long-running credit freeze.

Credit ratings agency Standard and Poor's downgraded Telefonica in August as Spanish consumers opted for cheaper tariffs and rival agency Fitch followed suit in September.

The 1.50 euro dividend for 2012 will include 1.30 euros in cash and the remainder via a share buy-back plan.

Spain's biggest company by market capital held to its dividend of 1.60 euros for 2011 and said it planned to keep its debt ratio between 2.0 and 2.5 times operating income before depreciation and amortization (OIBDA).

Vila told investors the company continues to assess its asset portfolio but declined to give any details on potential disposals. He repeated the company's earnings guidance for 2011.

Telefonica shares closed down 1.8 percent at 13.18 euros before the announcement, which was in line with a drop of 1.8 percent by the Madrid bourse's benchmark index <.IBEX>.

($1 = 0.7721 euros)

(Reporting by Tracy Rucinski; Editing by Martin Roberts and David Holmes)

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