Telstra share price higher on earnings beat and surprise dividend increase

Telstra's shares are having a strong day on Thursday. Here's why…

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Key points

  • Telstra's shares are pushing higher on Thursday morning
  • This follows the release of a full year result which outperformed the market's expectations
  • A surprise dividend increase has also given its shares a boost

The Telstra Corporation Ltd (ASX: TLS) share price has been a solid performer on Thursday.

In morning trade, the telco giant's shares are up almost 2% to $4.08.

Why is the Telstra share price pushing higher?

Investors have been bidding the Telstra share price higher after the company's full year results impressed the market.

In case you missed it, the company reported a 4.7% year over year decline in revenue to $22,045 million but an 8.4% increase in underlying earnings before interest, tax, depreciation and amortisation (EBITDA) to $7,256 million.

As a comparison, a note out of Goldman Sachs reveals that it was expecting underling EBITDA of $7.13 billion and the consensus estimate was $7.17 billion. The company has beaten both estimates, which helps explain why the Telstra share price is having such a good day.

Telstra's operating earnings growth was underpinned by an impressive performance from its mobile business. It reported EBITDA growth of 21.2% or $700 million thanks to the addition of 155,000 net retail postpaid handheld services, 2.9% postpaid handheld average revenue per user (ARPU) growth, and 6.4% mobile services revenue growth.

Pleasingly, more of the same is expected for Telstra's underlying EBITDA in FY 2023. Management has provided underlying EBITDA guidance of $7.8 billion to $8.0 billion. This represents a 7.5% to 10% increase year over year.

Dividend surprise

Also giving the Telstra share price a boost today was news that its board has decided to increase its dividend for the first time in seven years.

Telstra will be paying shareholders an 8.5 cents per share fully franked final dividend next month. This is up from 8 cents per share previously and means a full year dividend of 16.5 cents per share.

Telstra's CEO, Andy Penn, revealed that this increase reflects "the confidence of the Board" and "the recognition by the Board of the importance of the dividend to shareholders."

I'm not aware of a single broker that was expecting an increase today, so this has been a very pleasant surprise for the market and shareholders.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has positions in and has recommended Telstra Corporation Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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