Telstra, Australia’s largest telecommunications company, saw its shares dive to a five-year low on August 17 after announcing it will reduce its dividend this financial year. The operator reported a 1 percent lift in its full year profits amidst tough competition, but attention quickly centered on the announced cut to its dividend from next year.
The company says the cut to its dividend will help it create a battle fund so it can better fight new competitors in the market. Telstra paid 31 cents a share for the year just ended, but now plans to pay a total dividend of 22 cents a share for the financial year to end next June, after reassessing its dividend policy.
The move saw Telstra’s shares drop in morning trade on August 17. Shares were down 8.3 percent, or 36 cents at $3.95, Herald Sun reported, which is the lowest it’s been since September 2012. Lack of confidence in the firm resulted in $4.4 billion being wiped from its market value.
Telstra now expects to pay around 70 to 90 percent of its earnings in dividends, a historical shift away from its usual practice of paying out almost all of its profits. The new ratio, it says, is “more in line with global peers and local large companies.”
The move was “about setting the business up for success” said Telstra CEO Andrew Penn.