The bears have their fangs well and truly into the Telstra share price.
Telstra’s share price has fallen another 6% yesterday (taking the fall on Monday and Tuesday to 11% and into correction territory) amid a flurry of warnings from broking analysts that the company’s 22 cents a share dividend faces a second chop next year.
Telstra shares fell 5% on Monday after it issued a downbeat earnings guidance for the year to June 30, and warned that the tough and competitive conditions would continue into 2019.
The shares fell to a seven-year low of $3.04 on Monday but they dipped another 6% to a new near seven-year low of $2.865 yesterday before ending the day on $2.87, down 5.6%.
That was despite Telstra guaranteeing the 22 cents a share dividend would be paid for 2017-18. The company left the question of the 2018-19 dividend to the board (that will be raised in August when the 2017-18 results are revealed). Citi analyst David Kaynes was one to wonder about the sustainability of the 22 cents a share full year dividend.
He wrote in a note that Telstra needed to take “quick, drastic action in order to lower the earnings decline and minimise the next dividend cut”.
He also warned there was limited scope for revenue growth in the core business, Telstra would have to consider more aggressive cost-cutting, asset sales, tower sharing agreements and allowing competitors to access core infrastructure to increase revenues on the wholesale side of the business ( which is where the pressures from competition and the NBN are being most felt).
Mr Kaynes tipped a likely reduction in the dividend after 2018, saying there "wasn’t enough money" to maintain the payout at current levels in the next financial year.
"In our view, it no longer makes sense to pay 22¢ beyond [financial year 2018] when the sustainable dividend is likely to fall to 11¢ once the one-off payments end," he said.
Macquarie Wealth Management was another to forecast a dividend cut in 2019.
"While Telstra could use NBN one-off payments to sustain the current 22 [cents] level for the next few years under its current policy, we think the increasing pressures on the business introduce scope for … a more conservative view being taken on the long-term dividend outlook," the note to investors said.