While analysts are busy analyzing NTT's third-quarter earnings call, focusing on the costs associated with earthquake recovery and the potential shortfall in regional communications, a hidden detail in the transcript hints at a more concerning possibility: a potential dividend cut. This isn't about temporary cost pressures or one-time events. This is about a fundamental shift in NTT's approach to capital allocation, driven by the growing demands of its global data center ambitions.

The transcript reveals a concerning tension between NTT's commitment to its long-standing shareholder return policy and the increasing financial burden of its global data center goals. Although executives downplay any immediate change in policy, their words suggest a growing awareness of the limitations imposed by NTT Data's balance sheet.

"Mr. Hiroi, NTT's Senior Executive Vice President, acknowledges that NTT Data's balance sheet could face "quite a burden" from aggressive data center investments. This statement, seemingly innocuous, marks a stark departure from previous calls. It suggests NTT Holding Company, with its significantly larger balance sheet, may need to shoulder a disproportionate share of future data center investment."

This shift towards a holding company-led investment strategy raises crucial questions about the sustainability of NTT's dividend policy. If the holding company diverts significant cash flow to fund NTT Data's expansion, less will be available for shareholder returns.

Remember, NTT's dividend has increased for 13 consecutive years, a testament to its dedication to shareholder value. But the unspoken implication of Mr. Hiroi's remarks is that this streak may be in jeopardy.

The Hypothesis: A Dangerous Precedent

Here's the hypothesis: NTT's fourth-quarter profit will rely heavily on one-time gains from real estate sales to offset the expected shortfall in regional communications. This approach masks the underlying weakness in its core business and sets a dangerous precedent. If NTT continues to rely on asset sales to prop up its profit and fund its data center expansion, a dividend cut becomes not just a possibility, but a near inevitability.

The Numbers: A Perfect Storm

Consider the numbers: NTT needs to increase its consolidated profit significantly in the fourth quarter to meet its annual target. While executives express confidence, they also admit the situation is "very harsh." The reliance on real estate sales underscores this difficulty.

Meanwhile, NTT's global data center ambitions are only gaining momentum. The company aims to compete with giants like Equinix, a goal that will require sustained and substantial investment.

This creates a perfect storm: a struggling core business, an aggressive growth strategy, and a potentially unsustainable dividend policy.

Visualizing the Challenge: Operating Profit by Segment

To better understand the situation, let's visualize the operating profit contributions from different segments of NTT's business. The following chart is based on the Q3 2023 and Q4 2024 earnings calls, highlighting the challenges faced by the Regional Communications segment and the need for other segments to compensate.

The Fourth Quarter: A Defining Moment

While most analysts focus on the short-term challenges, the real story lies in this unspoken conflict within NTT's capital allocation strategy. Will NTT sacrifice its dividend to fuel its data center dreams? The fourth quarter will provide the answer.

"Fun Fact: NTT operates over 160 data centers globally, making it one of the largest data center providers in the world. Its data centers support a wide range of industries, from finance and healthcare to gaming and e-commerce, highlighting the crucial role NTT plays in the global digital economy."