The Telstra Corporation Ltd (ASX: TLS) share price is down 8% to $3.96 at the time of writing, after the company's results revealed weaker mobile earnings and a ~30% cut in the dividend forecast for 2018. Telstra shares are now down 27% over the past year:
Management lowered its future dividend policy to between 70% and 90% of profits (excluding one-off nbn payments) so the 22 cent dividend, or around a 5.5% yield at today's prices, could be here to stay. This was probably necessary given the increased competition in the sector – Telstra's core retail earnings fell 2.1%. As to the one-off nbn payments, management may monetise them for a one-off payment in the near future and use the proceeds to pay down debt and conduct buybacks.
Motley Fool analyst Mike King wrote this piece in September last year explaining why he was selling his Telstra shares, stating that the company faced an earnings hole, mounting debt, and possible dividend cuts. His fears proved accurate with Telstra now reducing its dividend and looking to pay down some debt.
The real question for shareholders now is whether Telstra is a buy going forward. For income-seeking investors, I think Telstra is an attractive opportunity. It pays a 5.5% fully franked dividend that should now prove highly sustainable. The company is the clear market leader and has one of the strongest brands in Australia, which translates to reliable earnings and a more secure income.
One thing Telstra is not however, is a growth company. Highs of $6.50 per share in 2015 look highly unlikely to be repeated in the foreseeable future.
