Telstra Aims to Grow Dividends, Return Excess Cash to Shareholders -- Update

By Stuart Condie

SYDNEY--Telstra Corp. Ltd. aims to increase its dividend and return excess cash to shareholders as key components of the Australian telecommunications firm's new capital management framework.

Australia's No.1 communications provider by market share said it was confident of maintaining its current annual payout of 16 Australian cents (11.7 U.S. cents) per share, and was focused on growing earnings to maximize dividend imputation. It aims to grow the dividend over time.

Telstra said it was targeting annual underlying earnings-per-share growth in the high teens from the 2023 fiscal year through fiscal 2025, with underlying earnings before interest, tax, depreciation and amortization growing annually in the mid-single digits over the same period.

It said it would invest in growth and return excess cash to shareholders. It listed share buybacks, capital returns and unfranked dividends as examples of how it could redistribute cash.

Telstra, which has flagged a return to underlying growth in fiscal 2022, this year agreed to sell a 49% stake in its mobile towers infrastructure, using the proceeds to pay down debt and launch a A$1.35 billion share buyback.

It is looking at options for its fixed-line infrastructure, which J.P. Morgan this week estimated could be worth A$31.7 billion. The investment bank said Telstra could generate post-tax proceeds of A$14 billion with the sale of a 49% stake, using half the cash to cut debt and the other half for a A$6.8 billion buyback that could boost earnings per share by about 10%-11%.

Telstra's stock has risen 50% since June 2018 and is up 32% this calendar year at A$3.93, fuelled by its asset monetization strategy and return to growth following a period in which earnings were hit by the roll-out of the government-owned National Broadband Network. Communications firms buy access to the network and resell it to customers.

Telstra is widely expected by analysts to bid for the NBN if it is privatized, with the creation of an internal fixed-line infrastructure unit seen as paving the way.

Telstra on Thursday said it was open to both organic growth and M&A opportunities.

"Organic growth opportunities could include a long-term or nation-building infrastructure investment," Telstra said.

The company said it aimed to cut fixed costs by A$500 million between fiscal 2023 and fiscal 2025. Telstra last month said it had cut costs by A$2.3 billion since fiscal 2016 and was on track to hit A$2.7 billion in savings by fiscal 2022.

Write to Stuart Condie at [email protected]