Telstra chairman John Mullen has given shareholders a guarded assurance that the telco is committed to maintaining the 16 cent dividend payment.
The Telstra annual meeting was a virtual affair across the country yesterday so the number of those watching isn’t known, but those who did would have their fears about the future of the return settled for a while.
Mr. Mullen made it clear there were qualifiers to that assurance (economy, COVID, etc).
Despite that investors liked the news and sent Telstra shares up nearly 4% on the day to close at $2.89.
Long-time shareholders can remember assurances about previous dividend settings of 28 cents a share which was in place for years but eventually cut because of the impact of rising costs, weak profits, and more competition from rival companies and the growth of the NBN.
Telstra is prepared to move outside its payout parameters of handing back 70% to 90%of underlying earnings so as to enable the 16 cents a share payout to be met.
Telstra needs to annual earnings before interest, tax, depreciation, and amortisation of $7.5 billion to $8.5 billion.
It is looking to cut $2.5 billion from its cost base ahead of the end of the NBN payments next year.
Mr. Mullen told the meeting “…the board of Telstra is acutely aware that the level of earnings being delivered by Telstra, the dividend and the share price are a disappointment to many investors, as indeed they are to us as well.”
“The board is acutely aware of the importance of the dividend to shareholders, and we understand the nervousness from some that COVID and other pressures may force Telstra to again cut its dividend.”
CEO Andy Penn “has previously said that to maintain the dividend at 16c within our Capital Management framework post the NBN, we need to achieve Underlying EBITDA in the order of $7.5-$8.5b, and I want to assure you that we are absolutely aspiring to achieve this.
“The board clearly understands the importance of the dividend and if necessary is prepared to temporarily exceed our capital management framework principle of paying an ordinary dividend of 70- 90% of underlying earnings to maintain a 16c dividend.”
Mr. Mullen said the board would consider the following factors in determining whether to go outside its capital management settings:
– whether an underlying EBITDA of $7.5b to $8.5b post the rollout of the NBN is achievable.
– whether the free cash flow dividend payout ratio remains supportive and we retain a strong financial position.
– whether there are other factors that would make the payment of the dividend at that level imprudent.
“This does not represent a guarantee of any level of dividend into the future as the board will need to consider all relevant circumstances before declaring each dividend, but hopefully this clearly demonstrates the board’s commitment to doing all that it can responsibly do to maintain the current dividend and eventually increase it again over time,“ Mr. Mullen said.