Is Telstra Corporation Ltd’s dividend plan in trouble?

Sale of stake in CSL delays Telstra’s announcement on what it will do with its billion dollar war chest

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Telstra Corporation Ltd’s (ASX: TLS) plans to grow dividends over the long term for shareholders appears to have hit a speed bump.

The giant telco’s sale of its stake in CSL, an Asian mobile service provider was expected to be complete by the end of March, but has yet to be finalised. Telstra has previously said that it would update investors on its dividend plans, once the CSL deal has been approved by regulators.

The sale of Telstra’s 76.4% stake in CSL is expected to bring in around US$2 billion, adding to the company’s war chest after selling 70% of Sensis to private equity fund Platinum Equity for $454 million, and other asset sales.

Telstra listed its Chinese internet company Autohome on the New York Stock Exchange in Noveber last year, valuing its stake at more than US$1.9 billion.

All up, analysts estimate Telstra is building a war chest of up to $7 billion. Given its dominance in the telecommunications industry in Australia, competition concerns limit the acquisitions Telstra could make.

iiNet Limited (ASX: IIN), TPG Telecom Limited (ASX: TPM) and M2 Telecommunications (ASX: MTU) would all be off the radar, given the issues the Australian Competition and Consumer Commission (ACCC) had with Telstra acquiring a small regional telco, Adam Internet. iiNet ended up acquiring Adam for $60 million.

There are now rising concerns that the CSL sale could be knocked back by regulators. China Mobile’s Hong Kong subsidiary submitted its view that the sale to Hong Kong Telecom (HKT) would create a dominant operator in the fixed and mobile services market.

Foolish takeaway

This is likely to be a stumble rather than a dead end, given the regulator extended the deadline for submissions by a week and a half. We should find out whether the deal is approved fairly soon, and shortly after that, what Telstra plans to do with its giant war chest. Anything could be on the cards, including a share buyback, special dividends or an increase in regular dividends – all of which would be welcome news for shareholders – including myself.

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Motley Fool writer/analyst Mike King owns shares in Telstra, TPG Telecom and M2 Telecommunications. You can follow Mike on Twitter @TMFKinga

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