Telstra declares higher dividend on lower profits

Telstra (ASX: TLS) delivered a bipolar full year FY22 result this morning with the telco giant raising it’s dividend for the first time in a long time, despite a material hit to its key numbers.

But given that today’s results were within Telstra’s guidance and analyst expectations, the share price opened 1.50% higher on the strength of the surprise dividend increase.

The Telco posted a -4.6% fall in net profit (NPAT) of $1.8bn compared to the previous year, on the back of a -1.3% drop in revenue to $21.3bn, while earnings(EBITDA) of $7,256m were down -5% and earnings per share (EPS) of 14.4 cents were down -7.7%.

Bitter pill

CEO Andy Penn was quick to attribute much of today’s disappointing numbers to the tail end of NBN headwinds, which he described as a “large and difficult pill to swallow.”

“The result caps a four-year transformation plan to “fundamentally change Telstra for the better,” noted Penn who will be replaced by CFO Vicki Brady as CEO 1 September.

Seven-year dividend high

But in spite of these disappointing numbers, Telstra still posted a final fully franked dividend for the year of 8.5 cents per share (CPS), compared to 8 cps in the 2021 financial year (payable 22 September).

This brings the total dividends for the full year to 16.5 cps, above brokers’ (16 cps) expectations.

Today’s dividend announcement marks the first increase in the total Telstra dividend in seven-years.

Penn told investors that today’s dividend recognises the confidence of the board following the success of our T22 strategy, the ambitious T25 strategy of high-teens EPS growth from FY21 – FY25, and the strength of the company’s balance sheet.

Noteworthy numbers

Despite some lacklustre numbers, Penn directed investors’ attention to strong performance across Telstra’s mobile segment, with post-paid per users revenues up 2.9%.

Equally noteworthy today, Telstra guided to FY23 total income of $23bn to $25bn and underlying earnings (EBITDA) of between $7.8bn and $8bn, which while up 7.5% to 10% year-on-year, were softer than consensus expectations.

Other highlights within today’s result included:

• Total income down -4.7% to just under $22bn

• Underlying earnings before (EBITDA) up 8.4% to $7,256m

• Mobile services revenue growth, up 6.4%

• Total operating expenses down $906m, or -5.8%

• Telstra Health revenue up 51% to $243m

Inflation and changing demand

Incoming CEO Vicki Brady told investors that the telco’s estimated FY26 earnings (EBITDA) will be materially lower than previously suggested due to cost inflation and changes to customer demand profiles for its inner-city fibre project.

“Not surprisingly, in the current economic environment we have seen cost inflation for construction and fibre supply,” Brady explained.

“Our extensive discussions with customers have provided view of their requirements, including the highest priority routes, and we are adjusting the staging of our rollout to meet this demand.”

With the market going through a period of severe dislocation, management also advised investors the telco will not be expanding its retail energy business Telstra Energy in FY23.

Telstra share price over six months.