Telstra’s result seems good enough
Telstra's earnings numbers today seem positive on face value, perhaps even slightly ahead of even the most optimistic forecasts in the market. The growth in mobile and broadband segments continues even though the rest of the fixed line business continues heading south. The first point of attention is the 28cps dividend commitment and there is no surprise there, rock solid in line with promise and market expectations Free cashflows are slightly lower than last year but still at a healthy $5bn as Telstra continues to invest into its business to the tune of $3.8bn this year.
Guidance should also please the market with revenue and EBITDA growth to be in the single digit range. Some might be disappointed here, hoping there would have been a higher rate of growth but one needs to take into consideration the nature of the Telco market and limited growth opportunities in a country of Australia's size. Free cashflow is expected to be lower but it seems like the commitment to dividend payment is unchanged.
Bottom line: The outlook statement implies Telstra's earnings per share might grow by around 5-10% this year which makes a 28 cent per share dividend comfortable and no longer close to the 100% payout limit. Those expecting an increase in dividend might need to look a bit closer at the spending intentions of Telstra and might be a little disappointed.
Still, Telstra doesn't really need to increase its dividend from current levels and investing in growth is perhaps a smarter choice given the way new technologies have helped offset the traditional fixed network over the past two years. With uncertainty still in the markets and interest rates falling, there doesn't seem to be anything here to change the reason for investing in Telstra for income.