Yell shares drop on dividend cut and gloomy outlook

By Mark Potter

LONDON (Reuters) - Classified advertising directories firm Yell Group (YELL.L) followed rivals by slashing its dividend on Tuesday and said worsening economic conditions would hit its prospects.

Shares in the publisher of the Yellow Pages in Britain and Yellow Book directories in the United States fell as much as 17 percent in early trading.

The stock had already tumbled around two-thirds in value over the previous 12 months as growing competition from Internet search engines was compounded by a cutback in advertising spending by directories groups' key customers -- small and medium-sized businesses -- due to an economic downturn.

"Circumstances have changed quite dramatically," Yell Chief Executive John Condron told Reuters, referring to worsening economic conditions since third-quarter results in February.

"I think it's (the tough trading environment) going to continue for the rest of this year."

Yell halved its final dividend to 5.7 pence a share for the year ended March 31 and said it also expected to halve the interim payout for the current financial year as it looks to pay down its net debt of 3.76 billion pounds.

This follows dividend cuts from U.S. rivals Idearc IAR.N and R.H. Donnelley RHD.N and Italy's Seat Pagine Gialle (PGIT.MI).

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