A look through the Dividends of Telstra and TPG Telecom

  • Aug 15, 2018 AEST
  • Team Kalkine
A look through the Dividends of Telstra and TPG Telecom

Dividends are usually required by people to set their retirement plan or are unable to work for some reason or the other. When the investors think on those lines it becomes easier to invest in businesses that might be paying out good income stream in a decade even if the payout is low the long-term approach can help, and one can expect future dividends. However, some good dividend paying stocks might turn the tables around if the challenges in the competitive-laden sector which they belong to, mount up wherein movement in stock prices and some weakness in company’s performance can inflate the dividend yields. Here we talk about 2 stocks of such a high intense competitive sector, the telecom industry.

Telstra Corporation Ltd. (ASX: TLS) - The company has recently announced a new leadership team and topline organizational structure under Telstra 2022 (T22) strategy. Andrew Penn, CEO announced that the changes will be effective from 1 October 2018. The telecom player has been under enormous pressure with high level of competition and lower margins on fixed-line internet services while it aims to sail through the same with the support from its Telstra 2022 strategy. The group also believes that its capital management framework stays intact and expects FY19 Capex to sales ratio in the range of 16-18%. If it is considered that in the second half, industry net mobile subscriber additions of about 500,000 will be reported then Telstra growth may fall below its competitors as per some market estimate. The stock was trading at a market price of $2.905 and has seen a daily price change of $0.015 and a percentage change of 0.519% as at August 15, 2018, market open. The stock has an annual dividend yield of 8.1% which is fully franked and this looks on an overblown side as the group has not been performing well in the past one year (down 29.99% in terms of stock price) while the market is eyeing the upcoming financial result in view of changes the group made recently. Primarily, the market is cautious of any dividend cuts that may follow the earlier slashes made by the group. Meanwhile, the group has announced for retirement of Steve Vamos from the Board at the upcoming AGM.

TPG Telecom Ltd. (ASX: TPM)  - The group although has a lower dividend yield, TPM has maintained decent performance track record. Lately, the group stated that price for shares to be issued with regards to Dividend Reinvestment Plan (DRP) is $ 5.1529 per share. The group paid the latest interim dividend on May 22, 2018, while the dividend ex-date was April 16, 2018. Over the period, the group has developed a reliable distribution network that can reach most of its potential market. However, the group has delivered another strong cash flow result in 1HFY18 with $ 417.2 Mn cash generated from operations pre-tax. At the end of 1HFY18, the group had bank debt (net of cash) of $1,394.3 Mn, which represents a leverage ratio of approx. 1.7 x EBITDA and had undrawn headroom of over $900 Mn in its debt facilities to fund its remaining mobile network investment. The stock was trading at a market price of $5.680, up 0.176% as at August 15, 2018, market open. The stock has an annual dividend yield of 0.71% which is fully franked. The stock has seen a performance change of 2.35% over the past 12 months. The company has been paying similar amount of dividend over the past 5 years given the steady performance.

While the above two players are now gearing up with regards to 5G plans, and have even slated for key investments centered around the 5G spectrum, both are key to watch given the intense scenario with earnings result due to be out soon.

TPM and TLS

TPM and TLS Dividends per Share (Source: Thomson Reuters)

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