The Telstra Corporation Ltd (ASX: TLS) share price is rising after the telco released its T25 strategy and also told the market about its dividend intentions.
T25 strategy to help the Telstra share price?
There are a few key elements to this new strategy.
Telstra wants to deliver sustained growth and value for shareholders. – It's targeting a compound annual growth rate (CAGR) of mid-single digits for underlying earnings before interest, tax, depreciation and amortisation (EBITDA) and high-teens for underlying earnings per share (EPS) from FY21 to FY25. Telstra also wants T25 to achieve another $500 million of net cost reductions, good cash conversion and generation, active portfolio management and shareholder value through an updated capital management framework.
It wants to provide an exceptional customer experience. – The telco is planning to expand into energy and continue to provide its other services. One part of the customer service will be using 'predictive analysis'. Telstra wants to ensure that customer can speak to an Australian contact centre service rep or visit a local expert in its Telstra-owned store network. It's looking to grow its Telstra Plus membership to 6 million by FY25.
The telco wants to have continued network and tech leadership, providing solutions that deliver for the future. – It's planning to extend its 5G network coverage to 95% of the population. Regional coverage will be expanded with 100,000sq km of new 4G and 5G coverage. The company also referred to greater access to tower assets with 250 new towers and 700 additional tenancies.
Telstra also wants to be a place that people want to work. – It wants to be in the 90th percentile for employee engagement.
The Telstra share price is currently up around 2% after releasing this update.
Dividend growth goal
A notable part of the T25 announcement was that Telstra is looking to maximise fully franked dividends for shareholders and seeks to grow them over time.
Telstra said that its objectives about its capital management framework is to maximise returns for shareholders, maintain financial strength and retain financial flexibility.
The company noted the importance of dividends for investors. It intends to return as much cashflow to shareholders that can be sustainably be supported by earnings and franking.
Telstra is confident in maintaining a minimum fully franked dividend of $0.16 per share, subject to no expected material events and the requirements of its capital management framework. At the moment, its franking credit balance is "low".
At the current Telstra share price, the telco's $0.16 per share annual payment equates to a grossed-up dividend yield of 5.7%.
It pointed out that in FY21 it generated 15.6 cents of reported EPS and 9.7 cents of underlying EPS. Management stated that it needs to grow underlying earnings in line with its financial ambitions and grow its franking balance in order to grow fully franked dividends.
Telstra has replaced its previous principle of paying fully franked dividends of 70% to 90% of underlying earnings because it expects its cashflow to remain ahead of its accounting earnings.
It expects FY22 to be the last year of special dividends funded by the NBN receipts.
Telstra share price valuation
Earnings estimates may change after the T25 update. However, the current Commsec estimates put the Telstra share price at 24x FY23's estimated earnings.
