Telstra Share Price Down as Profits Tank but Will Investors Baulk?

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Expectations were already low for Telstra Corp Ltd [ASX:TLS], but perhaps not low enough…

Australia’s largest telco released its full year earnings early this morning, and it isn’t pretty. Profits were eviscerated, falling by 40% year-on-year.

The final tally was a paltry $2.15 billion. The worst result the company has posted since going public in 1998!

Telstra dividend crunch

Yield hungry investors will feel the brunt of the telco’s poor year. The final (fully franked) dividend will be just eight cents. Amounting to a total paid dividend of just 16 cents per share for the financial year.

A six-cent drop from last year’s dividend (22 cents), and one-cent shy of half the return (31 cents) of the 2017 financial year.

Andy Penn though was doing his best to grin and bear what he has dubbed a ‘pivotal year for Telstra.’ And despite the poor numbers, he insists that ‘it is a year in which I believe we can start to see the turning point in the fortunes of the company from the changes we have embraced’.

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T22 or bust

The changes Penn is referring to is his bold T22 plan. An overhaul that will radically transform how the Telco operates.

Already we’ve seen massive job restructuring due to the T22 strategy. Cuts that did little to abate the pain for this year’s result. But, that is somewhat expected. It’s going to take a while to see the full effects of these changes.

What is more troubling — and a major thorn in Penn’s side — is the NBN. He estimates it has cost his company $1.7 billion to date to migrate the network.

Despite this huge burden though, they’re only at the halfway mark. Meaning investors can expect more pain in the future as Telstra foots part of the bill for the ongoing NBN rollout.

None of this will come as a surprise though, if you’ve been following the Telstra story. Just over a fortnight ago the Telstra boss was doggedly calling for the NBN to slash its wholesale prices. He argues that at their current rates, margins for retailers (like Telstra) just aren’t sustainable.

NBN boss, Stephen Rue wasn’t intimated though, and is refusing to budge. A decision that won’t sit well with Penn. No doubt, we haven’t heard the last of this ongoing war of words.

Whether this will totally undermine Penn’s T22 plans is unclear. It certainly isn’t conducive though, and that will just mean more stress for the Telstra boss.

Beginning of the end, or turning over a new leaf?

Ultimately, shareholders will be left wondering what comes next. Short-term, the pain is looking likely to continue. Penn admitted as much in his remarks:

Notwithstanding the intense competitive environment and the challenging structural dynamics of our industry’.

He is optimistic that it will be for the greater good in the long run:

…it is a year in which I believe we can start to see the turning point in the fortunes of the company from the changes we have embraced.

Belief and optimism will only last Penn so long, though. Eventually, he will need to deliver some positive financials as well. The clock is ticking…

If you’re looking for a reliable dividend investment then you may want to steer clear of Telstra for the moment. Fortunately, there are other options for yield investors right now. In fact, we’ve compiled a list of our current top dividend stocks on the ASX. You can check that out, for free, right here.

Regards,

Ryan Clarkson-Ledward,

For Money Morning

PS: Discover the hidden treasures available to everyday investors from this often overlooked sector of the market…Penny Stocks. Download your free report now. 

About Ryan Clarkson-Ledward

Ryan Clarkson-Ledward is an Editor at Money Morning.

Ryan holds degrees in both communication and international business. He helps bring Money Morning readers the latest market updates, both locally and abroad. Ryan tackles all the issues investors need to know about that the mainstream media neglects.

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