For many years, Telstra Corporation Ltd (ASX: TLS) has been a stalwart in investors’ portfolios for its reliable and juicy dividend, especially those looking for income such as retirees.
However, in the 2017-18 financial year Telstra slashed its dividend citing earnings headwinds from the NBN as it lost some of its competitive advantage which has been previously detailed here. Telstra’s dividend was cut by 29% from 31 cents per share (cps) to just 22cps in FY18. The share price too has fallen from $5.10 at the start of 2017, to a low of $2.57 in June 2018.
Will Telstra Lose Other Competitive Advantages?
One other advantage Telstra has had for a long time is that it boasts the superior mobile network in the country which competitors such as Optus, TPG Telecom Ltd (ASX: TPM), Vocus Group Ltd (ASX: VOC) and Vodafone Australia or Hutchinson Telecommunications Ltd (ASX: HTA) have not been able to compete with in terms of quality or reliability.
Part of the reason for Telstra’s dominance is due to its financial firepower or reliable cash flows which have been used to invest in mobile infrastructure that its competitors simply could not match.
Will There Be Another Mobile Competitor?
Aside from Optus and Vodafone Australia, TPG looms as a potential competitor in the mobile space that must be respected, especially if a joint venture with Vodafone Australia is given the green light by the ACCC. Or will TPG take its bat and ball and refuse to play?
Dividends Forecast To Be Cut
Telstra chief executive Andy Penn previously said Telstra would move away from a 100% dividend payout ratio to a range between 70% and 90%. Analysts are expecting earnings to decline over the next few years so investors should also expect the dividend to follow suit. Morningstar has a forecast dividend of 15.9cps.