Key analysts believe Telstra dividends are about to fall

Fred Marie / Barcroft Media / via Getty Images
  • Three major investment banks are forecasting significant declines in Telstra’s dividends.
  • They predict that next year’s dividends will be about 16 cents a share, down 27% from this year’s 22 cents.
  • Telstra is quiet on the issue, saying: “Dividend decisions for FY19 will be announced in FY19.”

Telstra’s major restructure, including the loss of 8000 jobs over the next three years, is all about adjusting the telco’s business to a more competitive environment and weaker earnings.

The three-year plan, cutting costs and restructuring, is a response to the erosion of Telstra’s dominant position as Australia’s biggest telco as competition intensifies.

The NBN roll-out is also smothering Telstra’s valuable fixed-line business and the company has had to accept lower margins to protect its market share.

CEO Andy Penn told shareholders that Telstra is at a tipping point, with the company needing to take a bolder stance.

The unspoken issue, within Telstra’s announcement of the changes, is what happens to dividends in the next few years?

Telstra did outline its dividend policy: to pay a fully franked ordinary dividend of 70% to 90% of underlying earnings and to return to shareholders 75% of net one-off NBN receipts via fully franked special dividends.

Telstra said: “Dividend decisions for FY19 will be announced in FY19.”

While Telstra confirmed that its 2018 full year dividend would be 22 cents a share, Macquarie, Citi and UBS analysts are forecasting significant drops from next financial year onward.

All three see next years’s dividend at 16 cents, a 27% drop.

Macquarie Wealth Management, in a note to clients, says a more conservative earnings outlook will drive down dividends.

“We have re-set our earnings expectations in line with the faster-than-expected declines in FY19,” the Macquarie analysts write.

“The key driver of the downgrades is Mobiles. Overall, we see Mobiles service revenues falling 7.4% in FY19, and EBITDA down $566 million or 13.8%.

“Fixed continues to be a drag on earnings as the NBN rollout continues at scale.”

Here are Macquarie’s forecasts for dividends:

Citi analysts have cut Telstra’s core earnings per share forecasts by about a third for 2019 and 2020, with mobile earnings expected to drop 30% in the next four years.

“We are skeptical about TLS’ ability to deliver on its increased productivity target, and have concerns that market expectations for the dividend remain too high,” analysts David Kaynes and Kofi Mensa write.

Citi is now forecasting a 2019 dividend of 16 cents a share, falling to 10 cents in 2021.

Here are Citi’s dividend forecasts:

UBS is forecasting 16 cents in dividends next financial year followed by a series of 14 cents a share payout, helped by special dividends. Ordinary dividends dip as low as 6 cents:

Image: UBS

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