Shares in Telstra Corp Ltd [ASX:TLS] have nosedived 8.08% in market trade today. The cause? The company has cut dividends, in the hope of salvaging its financial future.
Why did they do it?
Telstra has now stated it expects to pay $0.22 in dividends over the next financial year. Which will be down 9 cents from last year’s payout — a 29% cut. The market didn’t take the news kindly.
Telstra is trying to sweeten the sour deal, though. CEO of Telstra, Andy Penn, states,
‘In addition to the ordinary dividend, we intend to return in the order of 75 per cent of net one-off NBN receipts to shareholders over time via full-franked special dividends.
‘We believe this is appropriate given one-off income is akin to compensation for an asset sale over a number of years and aligns with market feedback and expectations that these receipts are returned to shareholders.’
It’s all part of the company’s plan for the future. Because Telstra need to plug their $3 billion money sink, the NBN.
The company also recorded a 32.7% drop in profits. Leaving it scrambling to ensure it will have a future post-NBN.
Where to from here?
Today is certainly a black mark for the company. But, it could also be a turning point.
Telstra has made a tough choice, causing short term pain in order to give their long term prospects a fighting chance.
The company is now on a clock, as the NBN rollout will finish in 2020. They have set themselves the lofty target of returning to profit in 2021. It’s going to take a lot of finesse, but Telstra appear confident.
It’s looks as though investors may be in for a bumpy ride in the interim, though.
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