Shares of Telefonica SA (TEF) plunged 13.39% in Tuesday's pre-market trading session following the company's announcement of a significant dividend cut as part of a new strategic plan. The Spanish telecommunications giant revealed its intention to halve the 2026 dividend to 15 European cents per share from the current 30 European cents, shocking investors and triggering a sharp sell-off.

The dividend reduction is a key component of the turnaround strategy implemented by Telefonica's new CEO, Marc Murtra, who took the helm in January. This move aims to prioritize investment in operations and debt reduction over shareholder payouts. The company stated that dividends for 2027 and 2028 will be based on a 40% to 60% ratio of free cash flow after investments, signaling a shift towards a more flexible dividend policy. Telefonica defended its strategy, citing the need for investment in artificial intelligence, cybersecurity, and defense technologies.

As part of its new strategic direction, Telefonica is focusing on four core markets - Spain, Germany, the UK, and Brazil - while divesting from several Latin American operations. The company is also eyeing potential consolidation opportunities in the European telecom market. Despite the negative market reaction, Telefonica remains optimistic about its future, targeting revenue growth of 1.5% to 2.5% annually for 2025-28, with an acceleration to 2.5% to 3.5% for 2028-30. Additionally, the company reported its Q3 earnings, with a net profit increase to 276 million euros from 3 million euros in the same period last year, although revenue slightly declined to 8.96 billion euros from 9.10 billion euros.