Deutsche Telekom, Europe's largest phone company, plans to pay a bumper dividend of 0.62 euros per share for 2004, soundly beating forecasts with its first payout after two years of slashing debts and costs. The 2.6 billion euro ($3.35 billion) payout plan was coupled with a robust third quarter, driven by solid cellphone growth in the US and UK, prompting the German giant to raise full-year net profit targets 28 percent to about 3.2 billion euros.
"The results are fantastic - especially out of T-Mobile USA," said Roger Appleyard, head of credit research at ABN Amro. "Credit analysts will like them, although equity analysts will love them."
With 40.8 billion euros of debt, Deutsche Telekom remains one of Europe's most indebted firms, but it has drawn a line under its beleaguered past with a dividend that is back to the level it paid out before it started cutting debts that once reached 71 billion euros.
"We are once again a completely normal company," Chief Executive Kai-Uwe Ricke told a news conference.
"I can promise you one thing: This management will do everything in its power to further increase net profits to be able to also pay higher dividends in the future."
As banks such as Smith Barney raised ratings on the stock to "buy" from "hold", Deutsche Telekom's shares climbed 4.9 percent to 15.74 euros by 1050 GMT, outperforming a 1.2 percent rise on the DJ Stoxx telecoms market.
"This steals the relative attractiveness from defensive stocks such as Swisscom, TDC and Belgacom," said Michael Fuchs, a fund manager at AM Generali Invest. "Now investors can jump on the big (telecoms) stocks."
The planned dividend gives Telekom's stock a yield - a measure of dividends against the share price - of 4.1 percent, putting it ahead of rivals like Dutch KPN or Swisscom.
With market faith restored in the company under Ricke, who took over two years ago to steer the company back into financial health, Deutsche Telekom said it planned to return to bond markets next year after a one-year break to help refinance about 9 billion euros in debt maturing 2005.
On an operating level, the company beat all estimates with third-quarter earnings before interest, tax, depreciation and amortisation (EBITDA) of 5.26 billion euros on Thursday, growing core earnings 12 percent as its mobile unit boomed.
Telekom said it planned to increase EBITDA next year by between 1.2 billion and 1.5 billion euros over this year's target, which it reiterated at 19.2 billion euros.
Net profit for the quarter came in at 1.39 billion euros, helped by a 600 million euro credit for assigning a higher value to its US mobile licences, on a 3.2 percent rise in revenues as mobile and Internet growth offset falling fixed-line sales.
Its fixed-line unit T-Com - the cash-cow that bankrolls the group's faster-growing businesses - held core earnings steady despite a 5 percent drop in sales to 6.007 billion euros.
T-Com's EBITDA was 2.593 billion, below 50 percent of total group EBITDA for the first time. Telekom's mobile arm T-Mobile pushed up core earnings 24 percent to 2.162 billion.