Telstra share price lower on Connected Future 30 strategy

Could fully franked dividends be coming an end?

The Telstra Group Ltd (ASX: TLS) share price is edging lower this morning.

At the time of writing, the telco giant's shares are down 1% to $4.67.

This follows the announcement of the company's Connected Future 30 strategy before the market open.

man using a mobile phone

Image source: Getty Images

Telstra share price falling on strategy launch

Investors have been selling Telstra's shares after the telco giant unveiled its Connected Future 30 strategy this morning. It is a bold new roadmap designed to drive growth, improve customer experience, and position the company at the heart of Australia's digital economy.

According to the release, the strategy aims to build on Telstra's recent progress in 5G, enterprise services, and digital transformation, while sharpening its focus on core connectivity and infrastructure.

Telstra CEO Vicki Brady said:

Telstra today announced its Connected Future 30 strategy – a strategy that leverages its leadership in mobiles and digital infrastructure, steps up its focus on cost discipline and efficiency across the business, and delivers consistent growth and value for shareholders.

We're at an inflection point, as technology and connectivity are transforming again. Customer needs are changing, and the connectivity we provide has got to get more sophisticated and flexible. How we anticipate and meet changing needs will be crucial. There's no version of the future that doesn't rely on technology, and it all needs to be connected. As a connectivity and digital infrastructure business with a long history of innovation, this is a massive opportunity for us.

Earnings growth targets

Telstra believes that this new strategy could underpin solid earnings and dividend growth for the company over the next five years.

Telstra's CFO, Michael Ackland, explained:

Our goal is to deliver resilient, predictable and consistent growth in shareholder value and returns. We aim to achieve this through a combination of mid-single digit compound annual growth in cash earnings' to FY30, and a sustainable and growing dividend. We will also focus on cost, BAU capex and investment discipline, and portfolio management.

We are targeting an underlying Return on Invested Capital of 10% by FY30 – above our cost of capital, and up from around 8% currently. We continue to evaluate and deploy capital depending on alignment to strategy and risk-adjusted returns, and our disciplined approach is likely to see us focus on divestments in the shorter-term.

The chief financial officer also revealed that divestments could be on the cards as the company seeks to simplify and streamline its business. One of the chopping block could be the Network Applications and Services (NAS) portfolio. He adds:

We are currently exploring potential options in our NAS portfolio as we look to simplify and streamline that business. We will also look at strategic investments for growth – such as we are doing with our Intercity Fibre project. Finally, our disciplined approach to capital management will be underpinned by our strong balance sheet and settings consistent with an A band credit rating.

But one negative from today's announcement that could be weighing on the Telstra share price is the revelation that the franking of its dividends could be in a danger. Ackland revealed:

While our strong preference is to continue to fully frank dividends, our franking balance is tight. We may consider partially-franked dividends if growing fully-franked dividends is not possible. Where we have additional capital to return to shareholders, our preference is buy-backs, rather than unfranked dividends.

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 Group. 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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