February 22, 2018 / 7:49 AM / 4 months ago

UPDATE 2-Deutsche Telekom hikes dividend despite record investment

* Dividend yield nearly 5 pct after third successive rise

* Expects 4 percent growth in core earnings this year

* Q4 EBITDA down 5 pct to 5.02 bln eur vs poll avg 5.25 bln (Adds market reaction, industry context, regional performance)

BONN, Germany, Feb 22 (Reuters) - Deutsche Telekom forecast that core earnings would grow in 2018 as Chief Executive Tim Hoettges, just handed a contract extension, seeks a balance between investing to upgrade its networks and rewarding shareholders.

Europe's largest telecoms company said it had invested a record 12.1 billion euros ($14.9 billion) in 2017 but found room to propose a third successive dividend increase - in line with expectations.

"We again kept our promises in 2017. Our shareholders should also profit from this," Hoettges said in a statement after recommending an annual payout of 0.65 euros per share, up from 0.50 euros.

That gives Telekom a dividend yield of nearly 5 percent. Its shares eased 0.6 percent in early Frankfurt trade but outperformed a 0.9 percent decline by the DAX index.

Telekom has just extended Hoettges' contract by five years, while Chief Financial Officer Thomas Dannenfeldt will step down at the end of 2018.

Europe's largest mobile operator said on Thursday it expected adjusted earnings before interest, taxation, depreciation and amortisation (EBITDA) to grow by 4 percent this year to 23.2 billion euros, above an average forecast of 22.8 billion euros in a Reuters poll. [

But fourth-quarter adjusted EBITDA missed expectations, falling by 4.7 percent to 5.02 billion euros.

BROADBAND STAKES

Telekom, which is 32 percent state owned, has faced pressure to step up investments in glass fibre broadband in its domestic market, where industry fears losing competitiveness due to a lack of super-fast connectivity.

The company said it had increased the availability of glass fibre-based connections in Germany to 9.6 million, up 41 percent year on year, but this includes 'vectoring' connections based its old copper network that are slower than fibre to the home.

That contrasts with French rival Orange's heavy spending on high-speed broadband which yielded a return to growth in 2017 for the first time in eight years.

France ranked a notch above the European Union average as of September 2017, with 15 percent of households with access to fibre to the home. Germany's penetration is less than 3 percent, according to FTTH Council Europe, an industry lobby.

In its home market, Telekom posted a gain of 2 percent in fourth-quarter revenue to 5.68 billion euros while its adjusted EBITDA rose 4.7 percent to 2.11 billion euros. Both were ahead of market expectations.

Group revenue tapered off, however, reflecting a drag from a weakening U.S. dollar on its T-Mobile U.S. unit, which accounts for more than half of overall sales.

Deutsche Telekom's adjusted fourth-quarter net profit rose nearly threefold to 2.66 billion euros. That was lifted by a one-off gain of $2.2 billion at T-Mobile US, which has already reported results, thanks to U.S. President Donald Trump's recent business tax cut.

$1 = 0.8145 euros Reporting by Douglas Busvine; editing by Maria Sheahan and Jason Neely

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