Is Telstra’s 28.5-cent dividend about to get bigger?

Depending on your personal details, you might have woken up this morning and checked your online banking only to notice you’re a few (or more) dollars richer.

Most of Telstra Corporation Ltd’s (ASX: TLS) shareholders would have got their dividends before the weekend but some might even receive cheques in coming days. However those of you who’ve held the company’s stock for a while – since 2005 – you’d be greeted by something a little extra in your account today.

That’s because back in February, when the company announced its first-half $1.7 billion profit of 2014, the board agreed to up the legendary half-yearly payout from 14 cents per share to 14.5 cents. Believe it or not, growing dividend yields are hard to come by in this market.

It might not sound like much but for a company with 1.4 million shareholders, upping the payout isn’t done cheaply. However if you’re content with a once-off increase to the bi-annual dividend, don’t be.

It’s growing increasingly likely Telstra’s board will elect to continue to grow the payout into 2015. The latest capital-intensive decisions undertaken by the board and senior management have not gone unnoticed.

Divestments of the company’s Hong Kong CSL mobiles business and Sensis, coupled with rising revenues and robust profit margins will put capital management front and centre when the telco behemoth announces its annual results later in the year.

Since the board, headed by Catherine Livingstone, considers dividends on a six-monthly basis the opportunity for a 29-cent fully franked payout in 2014 is the consensus expectation amongst analysts. For long-term investors the story gets even better. Morningstar is anticipating the payout to rise as high as 32 cents beyond 2015.

Foolish takeaway

With dividends, first and foremost, it’s important to consider where the money is coming from. For years, Telstra’s annual dividend rose well beyond 100% of its profits and resulted in higher debt levels. However with greater revenues, a more efficient and leaner business model and steadily rising profits, shareholders can be content with the company’s ability to pay a sustainable rising dividend.

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Motley Fool Contributor does not have a financial interest in any of the companies mentioned. 

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