Swisscom's Dividend at Risk: A Warning for Investors

Swisscom
(SCMWY), Switzerland's telecommunications giant, has long been a stalwart of steady dividends. But beneath its surface stability, a storm is brewing. New financial metrics reveal a precarious balance between shareholder payouts and deteriorating profitability, raising urgent questions about the sustainability of its proposed dividend hike. Investors should take heed: the writing is on the wall.
The Payout Ratio Red Flag
Swisscom's proposed dividend for 2025—CHF 26 per share, a 18% increase from 2024—seems bold, but the math tells a different story. In Q1 2025, its EPS fell to CHF 7.08, down sharply from CHF 8.78 in the same period last year. Assuming this trend holds, the payout ratio balloons to ~92%—a dangerous level, leaving little room for error.
High payout ratios are unsustainable when earnings are under pressure. Swisscom's reliance on a CHF 5.0 billion EBITDAaL target to justify the dividend feels increasingly optimistic. In Q1 alone, EBITDAaL fell 6.6% to CHF 1,277 million, with non-recurring costs (integration, pensions) masking deeper declines. Excluding these, EBITDAaL still dropped 4.2%, signaling structural weakness.
Debt Dynamics and Strategic Overreach
While Swisscom's net debt-to-equity ratio improved to 1.24x in Q1, this masks lingering risks. The company's leverage ratio (net debt/EBITDA) remains stubbornly high at 2.4x, a figure management vows to maintain. Yet EBITDAaL is shrinking, and the integration of Vodafone Italia—already contributing to costs—has yet to deliver promised synergies.
Meanwhile, operational headwinds loom large. In Switzerland, SME price competition is eroding B2B service revenue. Italy's mobile segment struggles, with B2C revenue declining despite cost-cutting. These pressures force Swisscom to prioritize cash conservation—directly at odds with its aggressive dividend policy.
The Free Cash Flow Mirage
While Swisscom highlights a 6% rise in operating free cash flow to CHF 498 million, this masks critical trade-offs. CapEx plunged 13.2%, including cuts to critical fiber investments. Sustaining its FTTH rollout to 57% coverage by 2025 will require renewed spending, risking further strain on cash flows.
The dividend's “subject to financial targets” caveat is no accident. If EBITDAaL fails to meet the CHF 5.0 billion threshold—a real possibility given Italy's underperformance—the dividend hike could unravel, leaving shareholders exposed to a potential cut.
Conclusion: A Dividend on Borrowed Time
Swisscom's financials paint a company clinging to its dividend reputation while battling declining profitability, integration costs, and market pressures. With a 92% payout ratio and a 2.4x leverage ratio, its proposed dividend hike appears a gamble—one investors should avoid.
The warning signs are clear: dividend sustainability is deteriorating, and the risks of a reversal are rising. For income-focused investors, Swisscom's stock is no longer a safe bet.
Act now: Reassess your exposure to SCMWY before the payout tide turns.
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