In this low interest, yield hungry environment, only one thing matters for most investors in Telstra (TLS), and that’s the dividend. It’s again 28c for the financial year to June, but more importantly it could increase next year, with the interim announcement next February.
Of course, the prospect of a higher payment (the current 28c a share annual payout has been in place since 2005 to support the shares as they came under pressure from changes in demand for its traditional fixed line services) wasn’t the only interesting bout of news from yesterday’s lengthy profit announcement from the company.
The company is getting solid drive from its mobile business and its cloud computing and services division which is rapidly emerging as a major profit centre of its own.
Earnings a share rose to 30.7c in the latest year, meaning the company doesn’t have to borrow to maintain the 28c a share dividend promise, as it has done in past years.
Analysts said there was enough evidence in the results details yesterday to justify a rise to 30c a share. Telstra said it plans to revert to considering the level of dividends on a half-yearly basis, thereby opening the way for an increase early next year.
In the wake of Tuesday’s interest rate cut, that’s sure to improve the appeal of the company to retail investors in particular.
But you can bet that shareholders will only be interested in one thing at the AGM later in the year. The shares rose 13c or 2.6% to $5.13 and helped drag the whole market higher yesterday for a 53 point gain, after Wednesday’s odd 90 plus point sell-off.
TLS 1Y – Hint Of Dividend Lift Sends Telstra Shares Higher
Telstra revealed in its announcement that it earned a net profit after tax of $3.9 billion for the year to June 2013, compared with $3.4 billion a year earlier and above market forecasts of $3.76 billion.
The company had a strong performance in its mobile business for the better than forecast result. It said it added 1.2 million new mobile customers in the last year, despite a slowdown in the mobile market, which seems to be approaching capacity.
Telstra now has more than 15 million retail mobile customers on its network. Mobile revenue jumped 6% in the year, faster than the 1.9% rise in overall revenues (to $25.6 billion).
Seeing the net profit rose 12% in the year, the company saw a significant rise in profit margins.
The company is planning on maintaining those margins, despite the approaching saturation point concerns (for analysts) by extending its 4G coverage to more of the country.
In fact CEO David Thodey indicated that by this time next year some 85% of the country would be covered by 4G, which is high speed mobile broadband quality communications for data and voice.
"We have been able to deliver the third consecutive year of significant customer growth as a result of our focus on improving customer service as well as continued investment in the network,” he said in yesterday’s statement to the ASX.
"Telstra expects growth to continue in financial year 2014 and forecasts low single digit total income and EBITDA growth, with free cashflow between $4.6 billion and $5.1 billion. Telstra expects capital expenditure to be around 15 per cent of sales as it continues to build out its 4G mobile network," the company said in its outlook comment.
"This guidance assumes wholesale product price stability, no impairments to investments, and excludes any proceeds on the sale of businesses, the cost of acquisitions and spectrum purchases.
“Our strategic focus remains on improving customer satisfaction, growing our customer base, simplifying the business and finding new growth opportunities. We believe there remains further opportunity to improve operational efficiency while at the same time growing new business opportunities,” said Mr Thodey.
Telstra has confirmed a fully franked dividend of 14c per share bringing total dividends per share for financial year 2013 to 28c per share. Shares will trade excluding the entitlement to the dividend on 19 August 2013 with payment being made on 20 September 2013.
Analysts said another bright spot for Telstra was its Network Applications and Services portfolio, which includes cloud computing and data storage for corporate clients. The division’s profit increased 17.7% to $1.5 billion.
But other parts of the business didn’t do as well. Telstra reported a 11.4% slide in overall revenue for Sensis, its classified and directories business, as it continued to move from print towards being a digital business. That transition saw Sensis lay off more than 600 people earlier this year.
Sensis reported digital media revenue growth of 11.3% which was more than offset by a 20% plunge in print revenue. Revenue from fixed lines fell 2.7% and data sales dropped 2.2%.
