The Telstra Corporation Ltd (ASX: TLS) share price's worst day ever was spurred by the company's plans to slash its dividends.
On 17 August 2017, Telstra released its earnings for financial year 2017 and the outcome of a capital allocation strategy review.
As a result, the telecommunication giant's stock fell 10.6% to finish the day's session at $3.87. That represented a new 5-year low and the worst fall Telstra's shares have ever experienced.
Of course, $3.87 isn't out of the ordinary for Telstra's stock in 2021. At the time of writing, the Telstra share price is $3.91, 0.26% higher than its previous close.
So, what exactly spurred Telstra's shares to drop 10.6% in a single session? Let's take a look.
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The Telstra share price's worst day ever
The Telstra share price's worst day on the ASX was spurred by the company's plan to slash future dividends.
Telstra announced it would be cutting its future dividends on the back of its capital allocation strategy review.
Historically, Telstra's dividends represented 100% of its underlying earnings. But after financial year 2017, the company cut them to between 70% and 90% of its underlying earnings.
Thus, Telstra's total dividends for financial year 2018 were expected to be worth 22 cents.
In fact, they came in at 15 cents. Though, that figure doesn't include two 3.5 cent special dividends which we will get to in a moment.
Dropped dividends weren't the only outcome of Telstra's capital allocation strategy review.
The telco also announced it planned to monetise around 40% of its NBN receipts. It expected the move would bring in between $5 billion and $5.5 billion of cash.
That cash would go towards paying off around $1 billion of debt. The rest would enhance shareholder returns, likely through share buybacks.
Additionally, Telstra announced that, in the future, it hoped to return around 75% of the value of one-off NBN receipts to shareholders through special dividends.
However, NBN Co rejected Telstra's plans to monetise its NBN receipts on 30 August 2017. Again, the news was to the detriment of the Telstra share price which fell 6% that day.
That meant Telstra's future plans were brought forward. Telstra began to give back some of the value of its off-of NBN receipts to shareholders in 2018 when it provided two 3.5 cent special dividends.
Telstra also released its earnings for financial year 2017 on 17 August 2017. They included modest increases to the company's revenue, earnings before interest, tax, depreciation, and amortisation (EBITDA), and net profit after tax.
