Big call hits telco stock

TELSTRA has suffered its biggest market rout in almost a decade after telling shareholders they will be stripped of $1 billion in dividends next year.

In one of his boldest moves yet as chief executive of the telco heavyweight, Andy Penn has announced the telco will cut its dividends in the coming year and divert the cash to deal with intense competition and the impact of the National Broadband Network.

The stock fell almost 11 per cent – wiping $5.5 billion from the company’s value – in its biggest fall since December 2008 to close at $3.87.

Telstra now expects to deliver a total payout to shareholders of 22¢ a share, fully franked, for the year to next June.

This will include ordinary dividends and a “one off” payout made with cash it is receiving for handing infrastructure to NBN Co, the company rolling out the network.

That compares with a total payout of 31¢ for the financial year just ended.

While shareholders will this year receive about $3.7 billion in dividends, the distribution will fall 29 per cent to $2.7 billion next year.

Telstra has traditionally paid out all its earnings as dividends but will move to payout ratio between 70 per cent and 90 per cent.

It says this is “more in line with global peers and local large companies”. Mr Penn it was about “setting the business up for success in the future”.

Telstra has long been a favourite of Australian retail investors and Mr Penn’s predecessor, David Thodey, paid out a whopping $22 billion to rank and file investors during his six-year reign.

That is one of the highest sums paid out by one company to Australian shareholders under the leadership of any single chief executive – albeit eclipsed by the $38 billion paid out at the Commonwealth Bank so far during the six-year reign of chief executive Ian Narev.

On a conference call with investors yesterday, Mr Penn noted Telstra had not cut its dividend as other companies had during the financial crisis a decade ago.

“We realise this is a material reduction from the historic level of our dividend and we do not underestimate the impact on our shareholders,” he said.

Telstra’s annual report, published with its results yesterday, also revealed Mr Penn received pay and perks worth $5.2 million over the past financial year, down from $6.7 million the previous year as he received less in long-term bonuses.

The telco’s net profit clocked in at $3.9 billion, down 32.7 per cent from the previous year when it was boosted by the sale of its stake in Chinese car classifieds website Autohome for $1.8 billion.