FTSE 100 telecoms group Vodafone (VOD) has pulled a massive U-turn and slashed its dividend by more than 40%, despite having committed six months earlier to maintaining the payment at the same level as the previous financial year.

The shares are now trading on a prospective yield of 6.1% versus 10% before the announcement.

For the year to 31 March 2018, the €0.1507 per share dividend cost the mobile phone giant €4bn (£3.5bn). The full year dividend has now been cut to €0.09 per share, or approximately 7.8p, taking the income back to 2009 levels and ending a 20-year run of rising income payments to shareholders.

Vodafone’s share price had been falling for a long time amid concerns about its ability to sustain dividends in light of investment requirements and high levels of debt. Having peaked at 238p in January 2018, the shares nearly halved to 131.78p on the eve of the dividend cut.

The shares fell nearly 4% on the dividend news to 126.84p despite a huge cloud now being lifted from the investment story.

The change in dividend policy will save the company about £7bn over the next five years, funds that will be needed if Vodafone is to successfully return to growth, while giving it more scope to repay its €27bn (£23.4bn) net debt.

Vodafone saw revenue and earnings before interest, tax, depreciation and amortisation (EBITDA) post single-digit declines in the financial year ending 31 March 2019. But excluding a sea of adjustments the company reported a €7.64bn pre-tax loss, although that does include hefty discontinued operations.

Future growth is focused on selling its converged fixed-line, broadband and mobile networks more widely to businesses and consumers across Europe, providing next generation internet of things and cloud services while using digital transformation initiatives to improve customer service.

It is also making a big bet on fifth generation (5G) mobile. Vodafone expects to launch the UK’s first 5G services in seven UK cities on 3 July.

Vodafone’s strategy on dividends is in stark contrast to fellow telecoms stock BT (BT.A) which has also been the subject of intense speculation regarding its own dividend.

Chief executive Philip Jansen, who only assumed the hot seat on 1 February this year, has confirmed plans to maintain BT’s dividend at 15.4p per share for the year to 31 March 2019 while expressing confidence for a similar payout this year.

This implies an income yield of nearly 7.5%, but analysts believe BT’s commitment to faster fibre roll-out and improving cash flow dynamics underpin dividend security.

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