23 TELUS Corporation: Dividend Policy
Introduction:
The Canadian Telecommunication industry recorded services revenues of $ 29.9 billion, which was highest ever. Telecommunication industry was known as incumbent local exchange carrier (ILEC’s), which is consist of four main companies such as TELUS, Bell Canada, Aliant Telecom and MTS (Manitoba Tel). These companies provide full range of wire line and wireless services. The Canadian telecommunications industry began to see rapid growth and changes ever since the introduction of cellular. After about a decade of multiple regulation changes and new entrants into the market, TELUS entered the industry with a merger between Alberta-based TELUS and BC Telecom in early 1999. In October 2000, TELUS acquired Clear-net Communication Inc., which put them in a favourable position in the national wireless industry. To finance this acquisition TELUS took on a short-term bridging loan, which resulted in a decrease in their debt rating to BBB (high). Even though Clear net did not have a dividend before the acquisition, TELUS decided to set the dividend at $1.40 for all common shares outstanding. They ended up completely rearranging the bridging loan after raising $9.2 billion in offerings of unsecured notes and bank syndicated credit facilities. In regards to TELUS’ dividend policy, the yearly dividend was kept at $1.40 after the acquisition of Clear net even though Clear net did not previously pay out any dividends to their investors before merger. The fact that the acquisition of Clear net left TELUS financially strained through a bridging loan, coupled with the industry wide downturn, reevaluation of their dividend policy needed to occur to ensure the financial security through the coming years.
Upon initial evaluation of TELUS’ current dividend policy, we speculated that the $1.40 dividend per share would not be sustainable with our projected future cash flows and would not align with the growth strategy....