Telefonica SA (Spain: TEF, NYSE: TEF) stock has been down-trending since mid-year, brought low as Europe’s sovereign debt crisis has dragged on. This week management essentially rolled back a planned dividend increase for fiscal 2012, with CFO Angel Vila stating, “We set our previous dividend policy back in October 2009 when market conditions were very different from today’s.” The news had a slightly negative impact on the stock, but no analysts covering it changed their opinion.

Telefonica yields slightly more than 10 percent at the projected 2012 rate, which management expects to hold in 2013 as well. It also reiterated previously stated guidance for full-year fiscal 2011 profits and said plans to sell non-core assets, cut debt and boost investment in Brazil by 52 percent were still on target. The company plans to pay EUR1.60 per share in cash dividends and stock buybacks for 2011. That’s just about 6 percent more than the declared rate of EUR1.50 in cash and buybacks for 2012, though the new rate is about 14 percent below the previously declared rate of EUR1.75 per share.

The key is whether the savings–which will be deployed for debt reduction–will allow the company to meet its guidance. We’ll know more when it reports fourth-quarter and full-year earnings, scheduled for Feb. 24, 2012. Meanwhile, Telefonica is a buy up to USD20.

As with all Big Yield Hunting recommendations, Telefonica should only be held in a diversified portfolio by investors who can stomach risk and who have the mental discipline not to average down should the stock fall further.

We’re also closing four positions this month: Chorus Aviation Inc (TSX: CHR/B, OTC: CHRVF), FP Newspapers Inc (TSX: FP, OTC: FPNUF), Zargon Oil & Gas Ltd (TSX: ZAR, OTC: ZARFF) and Alaska Communications (NSDQ: ALSK).

For more on Telefonica and the closed positions, see the December issue of Big Yield Hunting.