Dividend policy means cut for company investors

Telecom's shareholders face a dividend cut, with overseas investors hardest hit, after the company announced a change to its dividend policy.

The company, which currently has a 24c dividend floor, yesterday announced a new policy where the dividend target will be about 90 per cent of adjusted net earnings.

Telecom chief financial officer Russ Houlden said investors had a wide range of views on dividend policy, with some favouring extending the 24c dividend floor while others favoured a return to a 75 per cent or lower payout ratio.

The 90 per cent option was favoured because it was consistent with retaining credit ratings, and Telecom believed it could be fully imputed.

Craigs Investment Partners analyst Geoff Zame said the payout ratio was slightly lower than market consensus but for New Zealand investors it was offset by the restoration of the imputation credit.

He forecast a dividend payout of 16c a share in the next financial year, lifting to 19c in 2012

Telecom's share price closed down 2c at $2.13 yesterday.

Telecom's quarterly results showed a 10.1 per cent fall in revenue for the third quarter to $1.27 billion, with adjusted ebitda (earnings before interest, tax, depreciation and amortisation) for the quarter down 2.9 per cent to $464 million.

But expenses fell faster, down 14 per cent compared to the same quarter last year, in part because of a lack of advertising activity following outages on the XT network.

QUARTERLY COMPARISON
Quarter ended March 31, 2010

Revenue
* 2010 $1.3b
* 2009 $1.4b
* Percentage change -10%

Expenses
* 2010 $800m
* 2009 $929m
* Percentage change -14%

Ebitda
* 2010 $464m
* 2009 $478m
* Percentage change -3%

Net earnings
* 2010 $97m
* 2009 $159m
* Percentage change -39%

- additional reporting by NZPA