Telstra Post Dividend Shock: Now What?

Australia | Aug 22 2017

After all is said and analysed, Telstra shareholders are left pondering the future of their beloved income stock

-New dividend payout policy a negative shock, despite a solid FY17 result
-NBN rollout, competition and growing customer expectations pile on the pressure
-Five-year plan lessens uncertainty, (some) brokers say

By Nicki Bourlioufas

Telstra cuts dividend payout ratio by -30%

Telstra ((TLS)) faces a long-term re-rating as investors come to terms with the telco’s decision to cut its dividend payout ratio over the coming five years, starting this financial year.

Telstra announced a full-year profit of $3.8bn, which was in line with expectations. The company declared a second-half dividend of 15.5 cents, bringing the full-year dividend to the expected 31 cents per share.

But the company surprised the market with an announcement that from FY18, the full year dividend will be 22 cents per share, a cut of about -30%. This is a big blow to retail investors who make up 55% of the share registry. These Mum and Dad shareholders largely bought into the company for the sake of its (perceived) reliable income stream.

Telstra has historically paid dividends of 90-100% of earnings. Its new policy is to pay 70-90% of underlying earnings as ordinary dividends, plus special dividends over time that are equivalent to about 75% of one-off income from the National Broadband Network (NBN).

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