The Telstra Corporation Ltd (ASX: TLS) share price has risen by almost a quarter in the 2021 year to date, but could it be an idea for dividend income?
It has been a strange 12 months for the business. Its share price went under $2.70 at the end of October 2020, but it has risen by 40% since then.
Telstra has been busy making business moves in recent months.
In March 2021, it announced the next steps in its proposed restructuring to enable it to better realise the value of its infrastructure assets, take advantage of potential monetisation opportunities and create additional value for shareholders.
The business revealed that one of the divisions would be ‘InfraCo Towers’, which would own and operate Telstra’s passive or physical mobile tower assets, which Telstra said it’s looking to monetise given the strong demand and compelling valuations for this type of high-quality infrastructure.
In June 2021, Telstra revealed that it was going to sell 49% of that towers business to a consortium for $2.8 billion. The towers business is the largest mobile tower infrastructure provider in Australia with approximately 8,200 towers. Those consortium partners include the Future Fund, Commonwealth Superannuation Corporation and Sunsuper.
With that deal, Telstra says it’s able to maximise the overall value for shareholders, maintain control of the assets and agree terms that secure Telstra’s mobile network leadership and competitive differentiation into the future. It will continue to own the active parts of the network, including the radio access equipment and spectrum assets, to ensure it continued to maintain its industry leading mobile coverage and network superiority.
Telstra has entered into a 15 year agreement (with the option to extend) with InfraCo Towers to secure ongoing access to existing and new towers.
The company said it will be investing $75 million to improve connectivity in regional Australia. After that, it plans to return 50% of net proceeds to shareholders. Next month in reporting season, it plans to give more details about the manner of returning those proceeds, including a potential share buy-back in FY22 at its full year result. The rest of the money will be used to reduce debt.
What about the Telstra dividend?
In its FY21 half-year result, it said that the Telstra board expects to pay a FY21 total dividend of 16 cents per share.
One of Telstra’s stated goals is to maximise returns for shareholders. Part of that plan is to pay a fully franked ordinary dividend of 70% to 90% of underlying earnings. It’s also returning around 75% of net one-off NBN receipts to shareholders over time through fully franked special dividends.
The broker Ord Minnett currently rates the Telstra share price as a buy, with a price target of $4.25.
Ord Minnett is expecting the FY21 and FY22 annual dividend to be $0.16 per share. That translates to a grossed-up dividend yield of 6.1%.