LONDON (Dow Jones) - Deutsche Telekom AG, Europe's largest telephone company, on Thursday said it would make its largest dividend payment in company history alongside a 43% decline in quarterly profit due to asset sales a year ago.

Net income for the fourth quarter fell to 989 million euros ( $ 1.2 billion ) from 1.74 billion a year earlier.

Stripping out an array of special items, profit rose 66% to 1.02 billion euros and the operator proposed to lift its dividend by 16% to a 0.72 euros a share.

In the year-ago quarter, Deutsche Telekom (DT) booked a gain of 1.1 billion euros from the disposal of Russian mobile-phone company OAO Mobile TeleSystems and online brokerage Comdirect Bank AG.

Deutsche Telekom also said it wrote down the value of its T-Mobile U.K. unit by 1.9 billion euros in 2005, after revaluing the business following Telefonica's purchase of O2.

But it also received a 2.2 billion euro tax benefit in the United States .

"The reported net figure isn't really relevant because it includes so many special items. Investors need to focus on the adjusted figure," said Commerzbank analyst Heike Pauls .

Sales climbed 5.4% to 15.5 billion euros .

T-Mobile USA was the main growth driver, adding approximately 1.4 million net subscribers in the quarter.

Sales and profit figures were in line with analysts' estimates.

Deutsche Telekom shares rose 2.5% in Frankfurt morning trading.

"2005 was not an easy year for us, but it was successful in terms of the company's financial development. Competition in our markets has become tougher - and I mean much tougher," said Chief Executive Kai-Uwe Ricke .

"Nonetheless we managed to hit our targets and continue the positive development of Deutsche Telekom in 2005. We have continued to grow in a profitable way - without additional acquisitions," he added.

Analysts from German bank HVB said it was "a good set of results".

"The dividend announcement was especially important after we have seen lots of unjustified negative rumors in recent days," they added.

Merrill Lynch analysts also were pleasantly surprised by the dividend that beat their 0.68 euro forecast.

"We had thought that Deutsche Telekom may stay conservative given the calls on cash this year, and we take this move on dividend as an indication that management is now comfortable with its leverage at twice earnings before income tax, depreciation and amortization."

Deutsche Telekom last year unveiled plans to cut 32,000 jobs as demand for fixed-line services continues to shrink.

The operator reiterated its forecast for earnings before interest, tax, depreciation and amortization to drop to a range of 20.2 billion euros to 20.7 billion euros in 2006.

The group also said it targets 1.8 billion euros in savings by 2008.

Net revenue is expected to grow by around 5% in 2006 and 2007, or to a range of 65.2 billion euros to 66.2 billion euros in 2007. (END) Dow Jones Newswires 03-02-06 0542ET Copyright (c) 2006 Dow Jones & Company, Inc.