Portugal Telecom CEO Says Dividend Is Attractive After Cut

Portugal Telecom SGPS SA’s dividend remains attractive as the country’s biggest telecommunications company reduces payouts as part of a more “prudent” financial strategy, Chief Executive Officer Zeinal Bava said.

Portugal Telecom will pay an annual dividend of 32.5 euro cents a share for the fiscal years 2012 to 2014, it said today. The company paid 65 euro cents on last year’s earnings. It also announced a 200-million-euro ($249 million) share buyback program for the three-year period, and said it will offer 250 million euros of four-year bonds to the public.

The dividend policy will allow the Lisbon-based company to reduce debt and increase financial flexibility, addressing any “market concerns” about its balance sheet, as investors want “prudence,” especially in Southern Europe, Bava said in a phone interview today. Its moves will also let the company continue to invest, Bava said.

Portugal Telecom’s dividend yield is close to 10 percent now, compared with 8.5 percent for the sector, Luis Prota, an analyst at Morgan Stanley, said in a note today. The Portuguese company follows competitors such as Telefonica SA and Telekom Austria AG in cutting dividends as consumers and companies trim spending amid Europe’s sovereign debt crisis.

Portugal Telecom shares climbed 3.1 percent to 3.42 euros in Lisbon.

Business Fundamentals

Portugal Telecom said the amount of its planned bond issue may be increased and it is now refinanced until the end of 2015.

“This increases the prospect of at least some investors being willing to look at Portugal Telecom whilst waiting for the Portuguese macro environment to improve,” analysts including Keval Khiroya at Deutsche Bank said in a note today.

Ongoing Strategy Investments SGPS SA, the company’s second-biggest shareholder, said Portugal Telecom’s decision was a “responsible and adequate” move amid uncertainty in the financial markets.

Bava said today’s announcements means “the market can now concentrate on the analysis of the fundamentals of the company.” The executive previously said that Portugal Telecom was frustrated about its stock price, which has declined 23 percent this year.

Portugal Telecom reported in May that revenue rose 97 percent to 1.72 billion euros in the first quarter as it gained customers in Brazil after buying a stake in Brazilian phone company Telemar Norte Leste SA, also known as Oi, in March 2011.

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