Telstra announces surprise dividends. Is it helping the share price today?

Shares in the telecoms operator are up just 5% over the last 12 months, continuing their growth today.

Shares in Australia’s biggest telecoms operator Telstra (ASX: TLS) are among the most traded stocks on the ASX on Thursday.

The stock rose as much as 1.5% to $4.08, closing in on its best level in nearly six months. By comparison, shares in rival TPG (ASX: TPG) were up 0.8%.

Why is the Telstra stock price dialling higher?

Investors are cheering the stock after Telstra lifted its dividend for the first time since 2015. It will pay a better than expected fully-franked dividend of 8.5 cents a share, taking the total dividend for the year to 16.5 cents a share.

The first payout increase in seven years is seemingly a farewell gift by chief executive Andrew Penn, who will leave the company on August 31, and comes despite a dip in profit for the telecoms giant.

Net profit for the year to June 30 dropped 4.6% from a year ago to $1.8 billion, while total income was down 4.7%.

But underlying earnings before interest, taxes, depreciation, and amortisation (EBITDA) was up 8.4% to $7.3 billion.

To put things in perspective, the results were within the company’s guidance and analyst estimates, and far better than the 34% slide in half year net profit reported by the company in February.

“This represents the first increase in the total Telstra dividend since 2015 and recognises the confidence of the board following the success of our T22 strategy, the ambition in our T25 strategy… the strength of our balance sheet and the recognition by the board of the importance of the dividend to shareholders,” Mr Penn said on Thursday.

Improving outlook

Earnings from Telstra’s key mobile business jumped 21.2% or $700 million, with mobile services revenue up and hardware income down. InfraCo Fixed income came in at $2.4 billion, with core access revenue up 3.1% including a 3.3% improvement in NBN recurring receipts.

But the Fixed for Consumer and Small Business segment continued to be impacted by the tail end of NBN migration. Telstra still managed to cut costs, with underlying fixed costs down $454 million and total operating expenses slashed by $906 million over the year.

Mr Penn is credited with leading the Australian telecoms giant through several major transformations including the T22 program, under which Telstra slashed its employee count, delivered a massive $2.5 billion in cost savings and streamlined the business.

He also outlined the telco’s new T25 strategy, under which it is targeting annual growth rates in the ‘high-teens’ for underlying earnings per share until FY25. Recent months have seen a simultaneous spending push that includes investing in projects; teaming up with the Australian government to acquire the Pacific operations of telecoms firm Digicel, and pledging to boost regional coverage and extend 5G coverage.

The company expects to generate underlying EBITDA of between $7.8 billion and $8 billion for the 2023 financial year, while total income is expected to be in the range of $23 billion to $25 billion.

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