Telstra shares fall on dividend cut

TELSTRA executives have defended their decision to cut dividends, a move that has shaken investors and pushed Telstra shares to a five-year low.

Telstra expects to pay total dividends of 22c a share in the 2017/18 financial year — down from 31c in the year just ended — after reassessing its payout policy.

The move takes the company away from its practice of paying out almost all underlying profit to its 1.4 million shareholders, to paying 70 to 90 per cent of underlying profit, a ratio chief executive Andrew Penn said was “more in line with global peers and local large companies”.

“We realise this is a material reduction from the historic level of our dividend and we do not underestimate the impact on our shareholders,” Mr Penn said. “This is about setting the business up for success in the future.”

He said Telstra’s board had not take a resetting of its dividend policy lightly, and was seeking to balance returns to shareholders with the company’s long-term sustainability.

Chief financial officer Warwick Bray said the change would support a strong balance sheet during an uncertain period of digital disruption, increasing competition and the transition to the national broadband network.

“Our world is changing,” he said. “Technology innovation is accelerating, we’re seeing new competitors.

“The business needs to transform, and our dividend policy needs to match.”

Telstra shares were down 35c or 8.1 per cent, at $3.98 at 1.45pm, which wiped about $4 billion from its market value.

Telstra’s net profit in the year to June 30 of $3.9 billion was down 34 per cent from the prior year, when it got a oneoff boost from the sale of its stake in a Chinese business.

Telstra’s profit from continuing operations was up 1 per cent, and the company has forecast a modest increase in earnings in 2017/18.