Report on Corporate Finance

This report provides an analysis of dividend payout and dividend payout policy of Telstra Inc. in the field of corporate finance. It discusses the concept of dividends, how to calculate dividend per share, and the dividend payout ratio. The report also explores the three dividend payout policies: stable dividend policy, constant dividend policy, and residual dividend policy. It concludes that Telstra Inc. follows a constant dividend policy and aims to payout dividends each year. The report includes graphs and data to support the analysis.

Report on Corporate Finance
Report on Corporate Finance
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Table of Contents
Introduction.................................................................................................................................................3
DPS calculated for Telstra Inc......................................................................................................................3
Dividend payout ratio:.................................................................................................................................4
Dividend payout policy:-..............................................................................................................................6
A stable dividend policy-..........................................................................................................................6
A constant policy.....................................................................................................................................6
Residual Dividend Policy..........................................................................................................................6
References:..................................................................................................................................................7

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Introduction
What is Dividend- It’s a share of profit that a company pays to its shareholders. The
dividend is paid from the profit or the retained earnings to the share holder in the form of cash
payment, stock or any other form. Its in the interest of the company whether it wants to reinvest
the profit in the business or give always as dividend to the shareholders. It’s a kind of reward to
its shareholder for being invested in the company (Yarram and Dollery, 2015).
How to calculate Dividend per share (DPS)- The total dividend declared by the company minus
the special onetime dividend divided by the common stock issued.
DPS calculated for Telstra Inc.
Table A
Telstra dividend
Year ended 30th june $million
Dividend paid 2014 2015 2016 2017 2018
Previous year final dividend paid 1,742 1,866 1,893 1,894 1,842
Interim dividend paid 1,803 1,833 1,894 1,842 1,308
Total dividend paid 3,545 3,699 3,787 3,736 3,150
Total equity share holders 12,443 12,226 12,226 11893.3 11893.298
Dividend paid 2014 2015 2016 2017 2018
Dividends paid per ordinary share In Cents
Previous year final dividend paid. 14.0 15.3 15.5 15.9 15.5
Interim dividend paid 14.5 15.0 15.5 15.5 11.0
Total dividends paid 28.5 30.3 31.0 31.4 26.5
Data for the Graph:
Dividend paid 2014 2015 2016 2017 2018
Total dividends paid 28.5 30.3 31.0 31.4 26.5

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Graph 1- Dividend per share for 5 years.
The Dividend paid for the year 2018 is lesser than the dividend paid in the year 2014.
This has lead to the downward chart for the dividend per share. The highest dividend per share
was paid in the year 2017 that was 31.4 cent per share. The dividends are calculated in cents per
share. The decline in dividend payout may not persist as the company has announced that from
year 2019 they shall be changing their dividend policy and enforcing the new policy of fully
franked ordinary dividend paying at 70-90% of earning as dividend (Telstra.com.au, 2019). This
is to avoid double taxation. This provision was passed on 16th aug, 2018. In this provision they
shall be returning the 75% of the net one-off nbn receipts to shareholders over time via fully-
franked special dividend. Net one-off nbn receipts’ is an Agreement receipts, (consisting of Per
Subscriber Address Amount (PSAA), Infrastructure Ownership and Retraining), less nbn net cost
to connect less tax. The decrease in the 2018 dividend was due to the decrease of 5.2 % in the
EBIDTA thus decreasing the profit by 8.9% (Telstra.com.au, 2019).
Dividend payout ratio:
It is the amount of dividend paid to the shareholders in comparison to the net income.
The net income to be distributed to the shareholder in the form of dividend is called payout ratio.
The ratio of net income to be retained and the net income to be paid as dividend is called the
dividend payout ratio (Iftikhar, Raja, and Sehran, 2017).
The formula for calculating the dividend payout ratio is in 3 forms.
1. DPR = Total dividends / Net income
2. DPR = 1 – Retention ratio
3. DPR = Dividends per share / Earnings per share.

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The ratios can be calculated in 3 methods. Her to find the payout ratio we have taken 2
methods the total dividend/ total income and the dividend per share/ earnings per share method.
There is a slight change in the ratios due to the decimals fraction.
Graph 2- Dividend payout ratio as per dividend/profit.
The dividend are paid to the shareholder are calculated based on dividend / profit ratio
methods. The ratio of payout has been increasing and the highest payout can be recorded for year
2018. This means that the 89% of the earning will be given to the shareholders in the form of
dividend and the 11% will be retained for reinvestment in the company. The graph shows a dip
in 2016 because of the company retaining maximum amount of income for reinvestment
(Telstra.com.au, 2019).
Dividend payout based on DPS/EPS formula. The ratios will be same but there can be decimal
differences. The graph for the DPS/EPS formula.
Dividend payout ratio as per the formula - Dividend/Profit
Year 2014 2015 2016 2017 2018
Dividend 3,545 3,699 3,787 3,736 3,150
Profit 4,345 4,305 5,849 3,874 3,529
Dividend
payout ratio
0.82 0.86 0.65 0.96 0.89

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Dividend payout ratio as per the formula - DPS/ EPS
Year 2014 2015 2016 2017 2018
Total dividends
paid 28.5 30.3 31.0 31.4 26.5
Basic Earning
per share 34.4 34.5 47.4 32.5 30
Dividend payout
ratio 0.83 0.88 0.65 0.97 0.88
Graph 3- Dividend payout ratio based on DPS/EPS method.
As we can see the graph is having the same curve and it is dipping in the year 2016. The
ratios are also same for both the method. There is slight change in the numbers due to the
decimal fractions. So there are two strongly accepted method to find out the dividend payout
ratio.
Dividend payout policy:-
There are three dividend payout policy a stable dividend policy, a constant dividend
policy, and a residual dividend policy (Crane, Michenaud, and Weston, 2016.).
A stable dividend policy- is most liked option by the investors. The company pays stable
dividend each year irrespective of its earning. This policy is best for long term passive investors
they get paid the dividend even when the making low profit. The disadvantage is that it does not
allows the investor to get the full potential when the company is making huge profits, as the
dividends are fixed and stable.
A constant policy:- under this policy the company pays the dividend depended on the
percentage of its earning. Thus giving the investor full potential to use get the most out of it (Tse,
2018). This is also most loved payment option for many companies. Sometimes it also referred
to as the ethical dividend payout policy. The dividend is calculated based on the fixed percentage
that the board of the company must have decided.
A Residual Dividend Policy- In this company pays the dividend after they have taken out the
profit to be utilized for capital expenditure and working capital. The investors are not sure of if
the dividend will be paid or not (Baker and Weigand, 2015). A dividend payout policy that is
only beneficial for the company. The advantage for this policy is that it does not lose its profit
and makes the most apt use by investing in the company back. These companies generally are
very stable in the market and have less debt margin in capital structure.

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The company follows a constant dividend policy. The major goal of this policy is to
payout dividend each year. As it is very clear from the data the company follows the constant
dividend policy. They are paying the dividend in respect to the profit earned for every year.
Recently the board has also decided to make the Franking dividend method for avoiding double
taxation or any burden on the customers.
By analysis the payout structure we can conclude that the company is highly customer
oriented firm. It believes in sharing its profit with e investors and the stakeholders. The firm has
been giving huge amount of its earning in the form of dividend to its shareholders
(Telstra.com.au, 2019). From the year on they will be paying dividends based on franked
dividend method by carrying the credit for income tax (Byrne and O’Connor, 2017).
In the past year it has added 239000 additional retail customers, for postpaid mobile
services. A positive momentum was see on loT with revenue growth of 35.6%. It has added
64000 net retailers for the fixed line market along with distributing data connection. 308000 nbn
connections making 51% share in market for nbn (telstra divdend policy, 2019). Telstra has also
launched a new bundled service for their platinum customer. Telstra is focusing on 5G devices.
They are targeting market by manufacturing the device with 5G technology. The CEO Andy
Penn announced its success and stability by announcing the capability to be increased to make it
a manufacturing and technology company. They are progressing with the T22 strategies for te
customers (Telstra Exchange, 2019).

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References:
Baker, H.K. and Weigand, R., 2015. Corporate dividend policy revisited. Managerial
Finance, 41(2), pp.126-144.
Byrne, J. and O’Connor, T., 2017. Creditor rights, culture and dividend payout policy. Journal of
multinational financial management, 39, pp.60-77.
Crane, A.D., Michenaud, S. and Weston, J.P., 2016. The effect of institutional ownership on
payout policy: Evidence from index thresholds. The Review of Financial Studies, 29(6), pp.1377-
1408.
Iftikhar, A.B., Raja, N.U.D.J. and Sehran, K.N., 2017. IMPACT OF DIVIDEND POLICY ON
STOCK PRICES OF FIRM. Theoretical & Applied Science, (3), pp.32-37.
Telstra Exchange (2019). What you need to know about Telstra's 2019 half-year financial
results. [online] Telstra Exchange. Available at: https://exchange.telstra.com.au/2019-half-year-
financial-results/ [Accessed 19 May 2019].
Telstra.com.au (2019). Telstra - Financial results - Investors. [online] Telstra.com.au. Available
at: https://www.telstra.com.au/aboutus/investors/financial-information/financial-results
[Accessed 19 May 2019].
Tse, A.S., 2018. Dividend Policy and Capital Structure of a Defaultable Firm. arXiv preprint
arXiv:1810.03501.
Yarram, S.R. and Dollery, B., 2015. Corporate governance and financial policies: influence of
board characteristics on the dividend policy of Australian firms. Managerial Finance, 41(3),
pp.267-285.