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Telkom Plans to Start Paying Dividends Again
South African telecommunications giant, Telkom, is set to resume paying dividends to its shareholders after after many years of break.
The company’s turnaround strategy, spearheaded by CEO Sipho Maseko, appears to be yielding positive results, with Telkom posting a profit of R1.9 billion for the financial year ending March 2024.
This marks a significant improvement from the previous year’s loss of R5.1 billion.
Additionally, Telkom’s revenue grew to R43.2 billion, indicating a positive trajectory for the company’s financial health.
The news of Telkom’s potential dividend resumption is likely to be welcomed by investors who have been starved of returns in recent years.
Telkom last paid dividends in 2019, and the suspension of payouts was a major source of frustration for shareholders.
The company’s decision to prioritize debt reduction and capital expenditure over dividends had been a point of contention, with some investors arguing that Telkom was not adequately rewarding its shareholders.
Related Also: Telkom Owners Agree to Sell Their Tower Businesses
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A Cautious Approach to Telkom Dividends Resumption
However, Telkom’s management is taking a cautious approach to the resumption of dividend payments.
The company has stated that it will only consider paying dividends once it has achieved a number of key financial objectives.
These objectives include:
1. Reducing debt levels
Telkom has a significant amount of debt, and the company is committed to bringing its debt levels down to a more sustainable level before it starts paying dividends.
This will help to improve Telkom’s financial flexibility and reduce its exposure to interest rate risk.
2. Investing in Growth
Telkom is also planning to invest heavily in growth initiatives in the coming years.
The company is looking to expand its fiber network, upgrade its mobile network to 5G, and invest in new technologies such as cloud computing and artificial intelligence.
These investments are essential for Telkom to remain competitive in the South African telecommunications market.
3. Maintaining a Healthy Balance Sheet
Once Telkom has achieved its debt reduction and growth investment goals, the company will then consider paying dividends to shareholders.
However, Telkom is committed to maintaining a healthy balance sheet, and it will only pay dividends if it is confident that it can do so sustainably in the long term.
Read More: Telkom Owners Agree to Sell Their Tower Businesses
Telkom Dividends Resumption: Analysts Weigh in on Telkom’s Dividend Prospects
Analysts are cautiously optimistic about Telkom’s prospects for resuming dividend payments.
They acknowledge that the company has made significant progress in turning around its finances, but they also caution that there are still a number of challenges that Telkom needs to overcome.
These challenges include:
1. The Competitive Landscape
The South African telecommunications market is highly competitive, and Telkom faces stiff competition from rivals such as MTN and Vodacom.
Telkom’s ability to grow its revenue and profitability will depend on its ability to compete effectively in this market.
2. The Regulatory Environment
The South African government is considering a number of regulatory changes that could impact Telkom’s business.
These changes include the potential for increased competition in the fixed-line market and the regulation of over-the-top (OTT) services.
The outcome of these regulatory changes is uncertain, and they could pose a risk to Telkom’s future profitability.
Overall, the news of Telkom’s potential dividend resumption is a positive sign for the company’s future.
However, it is important to note that the company is taking a cautious approach to dividends, and it will only start paying dividends once it has achieved its key financial objectives.
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