Australian shareholders love their dividends, which can prove to be a source of much angst whenever the distribution gets reduced or cancelled. Here are 3 companies that announced cuts to their dividends this reporting season:
Telstra Corporation Ltd (ASX: TLS) – cut to 22 cents per share in the future
Telstra shares were savaged after the company reported weak results and announced that it would reduce its dividends to between 70% and 90% of underlying profit in the future. This is likely to equate to a dividend of 22 cents per share in 2018, 30% lower than the 31 cent payment this year.
G8 Education Ltd (ASX: GEM) – cut to 20 cents in 2018, then 70% to 80% of underlying profit
Surprisingly G8 shares rose on its results, despite the company announcing lower occupancy and a cut to the dividend. G8 declared that it would switch from paying quarterly dividends to bi-annual dividends in the future, and that 2018's dividend would fall from 24 cents to 20 cents.
Vocus Group Ltd (ASX: VOC) – dividend completely cancelled
Vocus cancelled its final dividend entirely at the full year results, as the company continues to grapple with a high debt burden that is close to the limits permitted under its banking covenants. Asset sales may be required in the future to bring debt down further, although the company looks stable for now.
Cutting the dividend is almost always a sign of financial stress, and so it has proven in each of these cases. Vocus, G8, and Telstra are all labouring under huge debt loads that have begun to constrain the business case – which is exactly what you don't want in a dividend stock. To be sure I'd still consider buying Telstra for the income, but in my opinion G8 has become too risky – and Vocus, obviously, canned its dividend.
