Telefonica SA (TEF) shares plummeted 10.02% in pre-market trading on Tuesday, following the company's announcement of plans to significantly cut its future dividend. The Spanish telecommunications giant revealed its intention to halve the 2026 dividend to 15 European cents per share from the current 30 European cents, as part of a new cost-reduction and debt-cutting strategy.

The dividend cut 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's strategic pivot includes 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 and looking to increase its exposure to defense and cybersecurity sectors. 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. The company also reported an increase in third-quarter net profit, rising to 276 million euros from 3 million euros in the same period last year.