This week was a big one on the ASX, thanks to earnings season ramping up. We heard from a number of blue-chip ASX 200 stocks this week, including Wesfarmers Ltd (ASX: WES), Medibank Private Ltd (ASX: MPL), and Transurban Group (ASX: TCL). But it was perhaps Telstra Group Ltd (ASX: TLS)'s latest earnings and dividend that were the most fascinating to go through.
As we went through yesterday, it was an exceptionally well-received report that Telstra released for its half-year ending 31 December. The telco posted earnings before interest, tax, depreciation and amortisation after leases (EBITDAaL) of $4.2 billion, up 4.9% over the same period in 2024. Cash earnings rose 14% to $2.5 billion. While earnings per share (EPS) were up 11% to 9.9 cents.
Overall, Telstra reported a net profit after tax (NPAT) of $1.2 billion. That was an increase of 8.1% on the prior period.
Investors were also delighted to hear that Telstra would be expanding its share buyback program. Telstra revealed that it had successfully purchased $637 million worth of stock over the six months to 31 December. However, the telco revealed yesterday that it would increase its overall buyback cap over the rest of FY 2026 from $1 billion to $1.25 billion.
But let's talk about the latest Telstra dividend.
Image source: Getty Images
Telstra reveals its first partially-franked dividend in 27 years
At first glance, it looked as though income investors had hit the jackpot with the dividend Telstra announced yesterday. Shareholders will enjoy an interim dividend worth 10.5 cents per share from the telco. That's up 10.5% from last year's interim dividend of 9.5 cents per share. It will be the largest single dividend that Telstra has funded in almost a decade.
That all sounded peachy. But something startling became evident when we dove a little deeper. This dividend, rather shockingly, will not come with full franking credits attached. This marks the first time Telstra hasn't paid a fully-franked dividend since 1999.
To be fair, Telstra's latest dividend is almost fully franked. It will come partially franked to 90.5%. But even so, this is a dramatic change for Telstra investors, who are used to seeing large, fully-franked dividends from this telco.
So what's going on here? Well, the company itself didn't really explain why this latest dividend has departed from the fully franked trend, only saying this:
On the back of cash earnings growth, the Board resolved to pay an interim dividend of 10.5 cents per share. The interim dividend is 90.5% franked, with a franked amount of 9.5 cents per share and an unfranked amount of 1 cent per share. The interim dividend uplift, and the level of franking applied, is consistent with our Capital Management Framework, and our aim to deliver a sustainable and growing dividend. Our dividend is supported by strong cash earnings this half, and our Connected Future 30 ambition remains to deliver mid – single digit growth in cash earnings.
A company can attach franking credits to its dividends only if it has accumulated those credits by paying corporate tax in Australia. Telstra obviously does this. However, perhaps part of this dividend was funded from cash that did not come from profits fully taxed in Australia. Perhaps Tesltra has deemed it prudent to keep franking credits on its books for a later date. We don't know for sure.
Even so, this is a momentous dividend for Telstra investors. It will be very interesting indeed to see Telstra's final dividend later this year and whether this partially franked interim dividend is a one-off or the start of a new era for Telstra's income investors.
