Some analysts are calling on Telstra Corporation Ltd (ASX: TLS) to take an axe to its current dividend payments.
Telstra dividends
According to consensus estimates, Telstra is not expected to start slicing and dicing its dividends — too much — until next year.
The comments come after Telstra chairman, John Mullen, recently said to Sky News, "If Telstra hadn't paid a dividend for 10 years we'd have a $50 billion war chest".
His comments follow the telecommunication company's announcement last year that it would have a $3 billion profit black hole from the arrival of the National Broadband Network (NBN).
The analyst community is going back to the drawing board, with one analyst saying Telstra's profits could fall to just 17 cents per share in coming years — from their current 34 cents. Needless to say that if it was making just 17 cents per share in profit it couldn't pay its current 31-cent dividend.
Other less bearish analysts expect that Telstra will cut its dividend payments to 24 cents per share within a year — that's a 22% reduction. It would still be a very generous 5.9% fully franked dividend at today's prices.
However, it would be very painful for shareholders who invested just one year ago, when Telstra shares were trading at $5.77.
Telstra shares have fallen 30% year-over-year and currently change hands for just $4.07.
Foolish Takeaway
The tough reality is that Telstra must reduce its dividend if it is going to reinvest in itself or make acquisitions for growth.
As Mr Mullen told Sky News, "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."
As I have stated previously, Telstra shares might be good value under $4 per share — but not until then.
