Telstra Corporation Ltd (ASX: TLS) has reported another explosive performance for its first-half operations, delivering a record profit which came in ahead of analysts' expectations.
The Results
Australia's telecommunications behemoth posted a net profit of $2.085 billion for the six months ending 31 December 2014, an increase of 22.4% on the prior corresponding period, despite a 2% decline in revenue from ordinary activities (excluding finance income) to $12.72 billion. Earnings per share also grew 23.4% to 16.9 cents. As reported by the Fairfax press, analysts surveyed by Bloomberg had tipped a net profit of $2.03 billion.
Fixed data revenue grew 7.8% to $1.175 billion with increased subscriber growth and higher average revenue per user, while its fixed voice business experienced its lowest rate of decline in five years, with revenue decreasing just 6.9%. The company attributed this to more customers moving onto bundled plans.
Source: Telstra half-year report
As can be seen in the chart above, Telstra's fixed business (including fixed voice, fixed data and other fixed revenue) is a major source of sales revenue for the company, so you'd be excused for being concerned over the sharp decline in revenue from the fixed voice business. However, the decline is being heavily offset by the company's Mobile division which recorded its strongest level of revenue growth in six halves, growing 9.6% to $5.327 billion. This was driven by subscriber growth of 366,000 to hit 16.4 million (see chart below).
Source: Telstra half-year report
Telstra reconfirmed its guidance for the remainder of the financial year, saying it expected continued low-single digit income growth in earnings before interest, tax, depreciation and amortisation (EBITDA).
The Dividend
Despite the record profit, Telstra decided to keep its dividend flat at 15 cents per share, fully franked. While that compares favourably to the 14.5 cent interim dividend it paid last year, it remains unchanged since the company upped its final dividend to 15 cents in mid-2014.
However, the company did reactivate its dividend reinvestment plan (DRP) which CEO David Thodey said came as a result of popular demand. While it last operated in 2008, Thodey said: "We have listened to our many shareholders who told us they would like to see a DRP return. The reactivation of the DRP will provide our shareholders with an easy and cost effective way to increase their shareholding."
While no discount will apply to the allocation price under the DRP, investors who choose to partake will save on brokerage and transaction fees. However, given the rather lofty price at which the stock is currently trading, investors may be better off receiving cash dividends so they can put their money to work on other compelling investment opportunities.
