Telstra share price drops 5% on FY26 report despite big dividend increase

Telstra Group Ltd (ASX: TLS) shares fell 5.2% after the telco released its full-year FY26 results on Thursday.

The Telstra share price opened at $4.95 apiece before slipping to an intraday low of $4.74 at lunch time.

Telstra shares have since recovered a little to $4.79, down 4.2% for the day.

Let's take a look at the numbers.

Telstra share price tumbles despite 11% dividend lift

Here are the highlights of Telstra's FY26 report:

• Revenue (excluding finance income) from ordinary activities $22,937 million, down 0.8% on the prior corresponding period (pcp) of FY25
• Underlying net profit after tax (NPAT) $2.5 billion, up 4.9% pcp
• Reported NPAT $2.4 billion, up 2.7% pcp
• Underlying earnings before interest, taxes, depreciation, and amortisation (EBITDA) after leases, which excludes material one-offs, rose 4% to $8.3 billion
• Reported EBITDA after leases $8.2 billion, up 3%
• Cash earnings per share (EPS) rose 14% to 25.5 cents per Telstra share
• Reported EPS increased 5.3% to 19.9 cents per share
• On-market share buyback of up to $1 billion announced
• Final dividend of 10.5 cents per share with 90.48% franking, up 10.5% from the 9.5 cents with 100% franking paid in FY25
• Full-year dividend 21 cents per share, up 10.5% on pcp

What else happened in FY26?

Telstra completed a $1.25 billion on-market share buyback in June, and announced a second buyback of up to $1 billion today.

Telstra CEO Vicki Brady said the buybacks "shifts our capital structure toward more debt and less equity".

She said this has been enabled by earnings growth and the strength of Telstra's balance sheet.

Importantly, these buy-backs are alongside increased capex and strategic investment.

Buy-backs allow us to lower our cost of capital and manage our sources of funding more efficiently.

This approach also supports earnings and dividend per share growth and, together with increased dividends, demonstrates our confidence in our financial strength and outlook.

What did Telstra management say?

Brady said FY26 was a strong year for Telstra, with lessons from a significant network outage last month to be taken on board.

FY26 was a strong year as we continued to deliver for customers and shareholders.

We increased investment in our network and delivered ongoing earnings growth, reflecting momentum across our business, and disciplined cost control and capital management.

Over FY26 we laid important foundations for the ongoing delivery of our Connected Future 30 strategy.

Brady said the 10.5% lift in the full-year dividend reflected the company's ambition to deliver a sustainable and growing dividend.

Our dividend is supported by strong cash earnings, and our Connected Future 30 ambition remains to deliver mid -single digit growth in cash earnings.

What's next for Telstra?

Brady said Telstra management would remain disciplined on costs and capital allocation in FY27.

As we continue to invest in network resilience and growth, including taking the lessons from our outage in July, we will maintain our
focus on productivity, simplification and positive operating leverage.

Telstra expects continued underlying EBITDA after leases growth, and provided FY27 guidance of between $8.5 billion and $8.8 billion.

The company expects capital expenditure of between $3.35 billion and $3.65 billion, with an increase in network investment.

The FY27 cash EBIT guidance is $4.75 billion to $4.95 billion. Strategic investment guidance is $0.2 billion to $0.3 billion.

Telstra share price snapshot

The Telstra share price has fallen 1.8% in the calendar year-to-date and 3.9% over 12 months.

The ASX 200 telecommunications share traded at a 52-week low of $4.71 in January before rising to a 52-week high of $5.58 in May.

The post Telstra share price drops 5% on FY26 report despite big dividend increase appeared first on The Motley Fool Australia.

Motley Fool contributor Bronwyn Allen has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has positions in and has recommended Telstra Group. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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