Profit taking, dividend capture players, lower yield/bad price and good trading strategy.
1) Profit taking: TEF hit a low of $53.xx around 6/7/2010 and then rallied to $82.68 right before the dividend. Some traders and investors probably took their $29.68 profits off and went to the sidelines; forgoing the dividend. Plus, a $29.68 profit is almost 6 years of dividends at a $5 per year rate. At some point money is money and you need to bank it.
2) Dividend capture players: If they held for the $2.70 dividend TEF dropped to $80.06 ex-dividend day -- dropping $2.62 all but $0.06 of $2.70 dividend. A little bounce to close at $80.85 the day following ex-dividend gave even a little bit more juice (dividend of $2.70 plus $80.85 price is like selling for $83.55 before ex-dividend) and an extra day to think about selling.
3) Yield: $5 dividend at $55 is a 9% yield. $5 dividend at $82.68 is a 6% yield. A 9% yield is compelling, a 6% yield is common in telecom at that time (T, VZ, WIN, CTL, FTR) and a reason to sell TEF and buy something else. For a price sensitive investor, $80+ is a bad price given a 6-month low of $55 or so.
4) Good trading strategy: I seriously consider selling when a stock that has a nice run up starts to go down. TEF dropped almost a dollar a day from $82.68 to $64 11/30/2010. At some point holding on to a stock that pays $5 per year in dividends for an $18.68 loss of market value does not make sense. Non-TEF example: I bought KO at $53 and it just never seemed to pull back. It hit $65 and sat. Then on 1/3/2011 KO was down on a good day for the market. KO was also down the following day so I sold for $64.60. If I bought back here at $63, I've pocketed almost 1 years worth of dividend, but I think KO now trades lower. ($64.60 - $53 = $11.60 profit or 6 1/2 years of KO's 1.76 dividend.) I was virtually certain when I sold I could buy it back several bucks lower. Does KO trade back to $53, probably not. Does KO trade below $60, probably and I will be looking to buy.
TEF is in my buy range now. The 6-month closing low -- which I use to measure my risk -- is $57.16 or $9.41 down from here. That is about 2-years worth of dividends to cushion my loss if TEF goes down. 7.5% yield here is now better than VZ, T, CTL and a few others, that should attract some swapping out of US telecoms into TEF.
And every time the illiterate traders in Wall Street get spooked by Euro they sell everything in Spain ie. short the index.
ENver mind they are also shorting a Latin American growth juggernaut with a 9% dividend yield for 3 years and 10% EPS growth annually virtually certain.
I am buying. Again.
I think it is a combination of the Euro, Spain's economy, missed estimates, and the US markets starting a correction. I think the market will drop another couple hundred points in the next week or two and I am thinking TEF will hit the high 60s when it does. Once that happens I plan on sinking a lot more money into this stock. I don't like to recommend stocks to people but this is one that I think is a great buy (long term).