Telstra dividend cut backfires

For Australian investors there are two telco stocks that really matter: Telstra, the incumbent, and TPG — the upstart.

For Australian investors there are two telco stocks that really matter: Telstra — the incumbent and TPG — the upstart. This year both telcos made a brave move ... they announced a cut in dividends. It’s what happened next that speaks volumes — Telstra was hammered, TPG got rewarded.

TPG actually moved higher by 8 per cent in the hours after CEO David Teoh released the group’s results early Tuesday as investors interpreted TPG’s dividend cut announcement as a positive: A vote of confidence that management can spend the money better by investing in the business.

At Telstra a remarkably similar dividend cut announcement some weeks ago went down like a lead balloon — rather than getting a vote of confidence Telstra has been sold off sharply and for an extended period — it has fallen from around $4.30 mid-August to $3.62 today.

What happened?

Telstra spent the last five years selling itself as a ‘utility’ stock — a company that would pay a dependable dividend stream. Challenged by a rapidly changing market CEO Andy Penn bit the bullet in August and signalled a new growth-focused Telstra that will offer a lower dividend stream: the market isn’t buying it for the simple reason Telstra does not have the scores on the board.

In contrast at TPG the market sees a stock that can win in an NBN era where growth is the name of the game. Remarkably, that reputation is built by a super low-key CEO in Teoh who is virtually invisible to most investors. There are few photographs of him, his appearances in front of shareholders are rare but the numbers stack up.

Since 2012 TPG stock has more than tripled in value — Telstra is around the same price today as it was in 2012.

Telstra’s one million shareholders — a dramatically larger group than TPG’s — might be forgiven for wishing they saw less of Andy Penn and better numbers in the company’s results presentations.