Proposal of 70 ct per Share

May 15, 2012

The shareholders' meeting on May 24 will vote on payment of a dividend. The Board of Management and Supervisory Board have proposed to the shareholders' meeting that a dividend of EUR 0.70 per share be paid again in 2011.

In 2010, Deutsche Telekom was the first DAX company to issue concrete plans on payment of a dividend over a period of three years. In doing so, the Group assumed a pioneering role. The plan is for the company to pay its shareholders an attractive dividend for the years 2010 to 2012. Specifically, a dividend of at least EUR 0.70 per share is to be paid for each of these three financial years. This payment makes the Deutsche Telekom share an attractive capital investment.

Is the dividend tax free?
The dividend will be tax-free once again this year, i.e. without the deduction of capital gains tax or the solidarity surcharge as the dividends are paid out in full from the tax contribution account pursuant to § 27 KStG (Corporation Tax Act) (contributions other than into nominal capital).

Dividends paid to shareholders in Germany are not subject to taxation. Dividends do not involve tax refunds or tax credits. In the German tax authorities' view, the dividend payment reduces the acquisition costs of the shares for tax purposes.

The Group faces massive pressure from the competition. Why does the company nonetheless continue to pay out such a high dividend?
Because, in our view - and we are not alone in this - a dividend policy should not simply follow the ups and downs of net income, which is also influenced by special factors. More importantly, it should tie in with development of the company's business operations. We also have sufficiently high equity - and here we are positioned at the upper end of the of 25 - 35 percent corridor that we have repeatedly communicated.

Our shareholders are a significant interest group, and for them it is extremely important that the dividend is predictable. The shareholders, the owners of the company, are entitled to expect an adequate yield on their shares. With our three-year outlook, they receive specific information that enables them to plan more effectively than in the past. Besides this, Deutsche Telekom pays out far less in dividends to its shareholders than its major competitors Vodafone, Telefonica and France Telecom, and actually lowered the dividend from EUR 0.78 to 0.70 as part of its financial strategy in 2010!

Can Deutsche Telekom even afford to pay a dividend?
Yes, definitely. Free cash flow is the right factor for defining the dividend at Deutsche Telekom, as it is for other big telecommunications and utility companies. The capital market also sees this performance indicator as a realistic basis for determining the company's ability to pay a dividend. Free cash flow indicates how much cash is freely disposable at the end of the financial year, to redeem debts or, alternatively, to pay out this dividend to shareholders.

In financial year 2011, free cash flow totaled around 6.4 billion, thus coming close to the previous year's level of EUR 6.5 billion. Deutsche Telekom pays some EUR 3 billion in dividends, a sum that is therefore easily covered by free cash flow.

Furthermore - from a strictly formal standpoint - the dividend is paid from the parent company's net income based on HGB (German GAAP), in other words by Deutsche Telekom AG. For financial year 2011, the company has a net income of EUR 4.7 billion at its disposal.

Does the dividend serve - as some media have commented - to keep those shareholders 'happy' who have suffered a substantial fall in the share price?
Your question clearly underestimates the dividend as an element of shareholders' total earnings. A survey carried out by Allianz Global Investors revealed that dividends for the 500 leading stock in the USA between 1926 and 2010 accounted on average for over 40 percent of their overall return.

In the past, dividend-carrying securities tended to be subject to lower price fluctuations than the rest of the market. The reason for this is that companies with a high dividend yield usually have solid balance sheet ratios with a relatively high equity base and stable cash flows. This is also true of Deutsche Telekom. Private investors who acquired Deutsche Telekom shares in 1996 have experienced a positive value trend of over 20 percent up to today.

Do dividend payments in general have greater significance for investors in the current market?
Deutsche Telekom shareholders want a sustainable investment. They are primarily interested in a secure rate of return, reliability and planning security. Here, it is important to know that most institutional funds actually have to invest money for their investors' pensions - for U.S. teachers, for example - and pay it out later on a monthly basis. In this context, stocks of utility or telecommunications companies with high and relatively stable cash inflows and dividend payments are very attractive.

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