Telstra gets tough on dividends

TELSTRA chairman John Mullen has defended the telco’s move to dramatically cut its dividend, saying it is now competing with Silicon Valley goliaths who “don’t pay dividends at all”.

Delivering a dose of tough love to shareholders at the group’s annual meeting yesterday, Mr Mullen said Telstra had no choice but to make the cut — its first in 16 years.

Telstra would not go on an acquisition spree to plug the gaping revenue hole created by the rollout of the National Broadband Network.

“We are not going to do anything foolish to fill the $3 billion gap taken by the NBN,” he told shareholders.

The revenue that would be lost was equivalent to the annual earnings of companies the size of Origin Energy, CSL and Qantas Airways, he told about 700 shareholders at the Melbourne Convention and Exhibition Centre.

Shares in Telstra have fallen almost 30 per cent in the past year, and on October 5 closed at their lowest level in more than five years — $3.38. They were steady yesterday at $3.55.

Mr Mullen said it was a harsh reality that the telco had to reduce its payouts to shareholders. Telstra maintained its final dividend for the past financial year at 15.5c, ensuring its full-year payout this year was steady at 31c.

But from this financial year the telco will pay out 70 per cent to 90 per cent of underlying earnings — a tally that excludes one-off items — ending its historical practice of paying out almost all net profit.

Telstra expects the total dividend payout this financial year to be about 22c a share, fully franked.

“I don’t like it, I know that you don’t like it, but the world has changed,” Mr Mullen said.

“It would have been irresponsible of the board not to take this tough but correct decision for the future.”