In the last seven months Telstra Corporation Ltd (ASX: TLS) has been busy. Selling assets, listing businesses and negotiating with a new government have all been on the agenda.
With so much activity taking place, the burning question for shareholders is: "Am I going to get a bigger dividend?" The simple answer is yes, but it's more complicated if you want to know when it will happen.
Investors were half expecting the board to approve a one cent increase to its legendary 28 cent dividend last financial year but management cited uncertainty over the National Broadband Network (NBN) as a reason to hold off increasing the return. In my opinion, indecision over the NBN and ongoing negotiations with the Coalition government will be persistent until mid-2014 and we won't know until right before the end of the financial year whether or not Telstra will be required to do more, or less, under the Coalition's NBN strategy.
In FY13 Telstra reported free cash flow of $5.024 billion and capital expenditure of $3.792 billion. After the recent sale of its Hong Kong mobile business CSL and now Sensis – for a combined total of $2.454 billion – Telstra is forecasting cash flow between $4.6 billion and $5.1 billion.
Another consideration that must be taken into account is Telstra's growth strategy, particularly its Asian expansion. Management are remaining quite open minded about possible acquisitions that fit into the capital management strategy and focus on bringing Telstra more into the technology space rather than telecommunications. The company has made a number of small acquisitions in the local market as have iiNet Limited (ASX: IIN), M2 Telecommunications Group Limited (ASX: MTU) and TPG Telecom Ltd (ASX: TPM).
Foolish takeaway
All things considered, I believe Telstra's dividend will increase by one cent over the full FY14. Morningstar's analyst consensus is also predicting the payout to reach 31 cents per share in FY15. However, shareholders and investors shouldn't concern themselves over such small increases in the company's payout, instead you should carefully evaluate whether or not you believe Telstra will continue to grow earnings in coming years, because if it cannot, its share price could fall and wipe out any expected benefit from a small dividend increase.
