The Telstra Corporation Ltd (ASX: TLS) share price dropped 7% to $3.56 this morning as investors head for the exits now that the telco's stock is without the rights to what will be its last 15.5 cents per share dividend payment for a very long time.
The telco also advised the market this morning that it won't be able to monetise its NBN payments by securitising them to on sell as debt due to objections from the NBN company itself.
This August the telco's chief executive confirmed to investors that its dividend would need to be slashed by up to 30% over FY 2018 as the company has a $2 billion to $ 3billion earnings void to fill as a result of the rollout of the national broadband network.
In fact for the last few years the telco has paid out nearly all its profits to dividend-hungry investors, which was leaving nothing left over to deal with its debt pile or more adequately reinvest for growth.
Telstra now expects to pay out 70%-90% of underlying profits as dividends and up to 75% of NBN one-off payments will be returned as a special dividend. In effect it estimates that dividends in FY 2018 will total just 22 cents per share including NBN payments.
I sold all of my Telstra shares in 2015 at an average price of $6.20 given the NBN headwinds, my lack of confidence in management's strategy for growth, and my expectation that interest rates were at the bottom of the cycle.
Telstra's CEO seems more of a numbers man than a technology man and is yet to outline where he expects its growth to come from over the 3 to 5 years ahead, while markets are now correct to bet heavily that the RBA's next move in cash rates will be higher in 2018.
Higher cash rates over the next 3 to 5 years are likely to reduce the attraction of Telstra's yield to dividend seekers, especially given its problems generating earnings growth. As such I'm not a buyer of Telstra shares, despite today's steep price falls.
