Telstra shares drop as dividend in focus
Telstra shares are under fresh pressure following chairman John Mullen's comments that the telco's future as a dividend-paying business could be on the wrong side of history.
In an age of new-tech giants such as Amazon, Mr Mullen acknowledged Telstra would be in a different position today if it had diverted dividend funds away from shareholders and into an Amazon-killing war chest.
"If Telstra hadn't paid a dividend for 10 years we'd have a $50 billion war chest to take on these new competitors," Mr Mullen said in an interview on Sky News Business on Tuesday night.
Telstra shares fell seven cents, or 1.7 per cent, to $4.11 on Wednesday and are now down 19 per cent for 2017.
Mr Mullen's comments come after Citi analyst David Kaynes suggested last week that ,on its current trajectory, Telstra's earnings per share will be flatlining at 17 cents in two years.
"In our view, it is no longer practical for Telstra to maintain its current 31 cents per share dividend payment," Mr Kaynes said.
Citi are the latest analysts to encourage Australia's largest telco to cut its dividend and use the funds for either share buybacks or growth-generating acquisitions.
Speaking on Sky, Mr Mullen said Telstra was on the wrong side of a intensifying division between traditional, dividend-paying businesses and companies that reinvent through reinvestment.
"There's going to be a growing divide between the older established companies and some of these newer companies based, not just around wonderful technology service enhancements, but because their whole business and investment model is different," he said.
"I think its fascinating that the potential competitors of the future - who are not our traditional Optus and Vodafones, but rather the Amazons of this world - don't pay a dividend and they re-invest an ever increasing cash flow in cheaper and better products and in increasing market share."
Mr Mullen said when businesses operate in an "extremely changeable" environment, boards continuously review dividend policy.
Telstra has been facing a new competitive reality since April, when the legacy-heavy telco lost 70 cents in two weeks after TPG secured mobile spectrum for its new 4G mobile phone network.
But suddenly halting and reinvesting dividends might not be the safest way for Telstra's board to adapt to the conundrum, Mr Mullen said.
"If I stood up at an AGM and said Telstra is not going to pay a dividend and lose money for ten years to compete with a new age business there'd be a hearse waiting outside the AGM for my still warm body," Mr Mullen said.
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