NZ stocks: Telecom drags leaders down 2 per cent

Telecom dragged the leaders' index 2 per cent lower yesterday after the company announced drops in earnings and dividends and a mop-up of its Australian subsidiary AAPT.

Telecom shed 35c to 720, with more than 4 million of the market heavyweight's stock changing hands.

The NSZE-10 index lost 22.86 points or 2.2 per cent to 1004.64, but the movement was not so pronounced on the benchmark NZSE-40 index, which fell 25.12 points or 1.2 per cent to 2145.50.

The news that Telecom is halving its dividend next year was seen as the most deflating influence on its share price, because the stock's high yield and company's policy of paying nearly all its profits out in dividends has been a key attraction for investors.

"The company is just going through that phase of moving away from being a relatively high yielding [stock] to being more growth-oriented," said Alan Wills of Cavill White Securities.

"That has got to be positive in the longer term but short term the company is going through this little period of uncertainty."

Mr Wills said investors would have to adjust their aspirations from short-term returns to longer-term capital gains.

He did not expect a substantial change in the company's share register, noting that overseas institutions had been looking for Telecom to invest more heavily in growing its business.

Tower Asset Management New Zealand equities analyst Paul Robertshawe said the market knew Telecom was reviewing its dividend policy and "when it's 100 per cent there's only one way to go."

"Some will be surprised it has been cut to 50 per cent. A lot of people were expecting it to be reduced to 70 per cent as an interim message," Mr Robertshawe said.

Mr Wills said net earnings of $783 million for the June year, coming in at the lower end of analysts' expectations, was also bruising Telecom's share price.

Overall, rises outnumbered falls by 68 to 38 among the 152 stocks traded on turnover worth $83.21 million, of which Telecom accounted for $29.07 million.

Auckland Airport gained 9c to 302 on turnover of 1.8 million shares, amid expectations of increases in landing charges, a global re-rating of airport companies and growth in tourist numbers.

While Fletcher Energy edged up 2c to 777, Fletcher Building shed 5c to 222 and Fletcher Paper eased 2c to 83 with 2 million shares traded.

Elsewhere, Montana gained 8c to 239 after Monday's news that it has applied for Commerce Commission clearance to buy rival Corbans.

- NZPA