Growing dividend, $1 billion buyback - is it enough to keep the barbarians at the gate?

Telstra (ASX: TLS) has delivered another year of earnings growth in FY26, with higher mobile revenue and lower costs helping offset a small decline in group revenue.

Underlying EBITDAaL rose 4% to $8.3 billion, near the top of guidance, while underlying operating expenses fell 3%. Shareholders were also rewarded, with the full-year dividend lifted 10.5%, to 21 cents per share, and a new $1 billion share buyback announced, following the $1.25 billion buyback completed in June.

For ClearBridge Investments' Patrick Potts, the result did little to disturb the income case for Telstra.

“We see Telstra being in a position to increase the dividend by a cent per year going forward, and nothing came out of the result that changed that.”

But the result wasn't without its blemishes. Revenue slipped 0.8%, while Telstra shed 1,219 roles during the year as it restructured parts of the business and exited some operations. And after a strong run into the result, the shares fell around 3% in early trade.

There are also barbarians gathering at the gate. Competition is fierce, Starlink is looming as a potential longer-term threat, while regulatory changes could chip away at Telstra's prized regional network advantage.

So, with mobile still growing, costs coming down and more capital being returned to shareholders, can Telstra keep those threats at bay and continue delivering for investors? I spoke to Potts to find out.

Telstra FY26 results

• Revenue: $22.94bn, down 0.8%
• Underlying EBITDAaL: $8.34bn, up 4%, near the top of $8.2–8.4bn guidance
• Cash EBIT: $4.66bn, up 8%
• Underlying NPAT: $2.5bn, up 4.9%
• Reported NPAT: $2.4bn, up 2.7%
• Cash EPS: 25.5c, up 13.8%
• Underlying ROIC: 9.0%, up 0.5 percentage points
• Full-year dividend: 21cps, up 10.5%
• Underlying operating expenses: down 3%
• Share buyback: up to $1bn announced, following $1.25bn completed in June

Do you currently hold Telstra and what do you rate it?

We hold Telstra across a number of our income funds, primarily for the dividend. 

Given the valuation, we rate it a HOLD, although the valuation has come down a little following the result.

What mattered most from the result?

For Telstra, it’s all about mobile revenue and earnings. That’s a key driver of the business, and the FY26 numbers were broadly in line with expectations, with mobile revenue and earnings up around 3%.

There was some subscriber movement from higher-priced postpaid plans to cheaper plans, which the market will focus on. But Telstra’s ability to offer products ranging from premium through to more value-based plans positions it well in mobile. With price rises also coming through, that should support revenue and earnings growth in FY27.

The other key part of our thesis is continued earnings and cash flow generation to support dividend growth. 

That also depends on capex and sufficient investment in the network to maintain Telstra’s network superiority. On those measures, the result was broadly in line with our expectations.

How do those outcomes affect the outlook?

Cash generation in FY26 was very good. While capex is expected to step up in FY27, we think that will be offset by revenue growth and further opportunities on the cost side.

We see Telstra being in a position to increase its dividend by a cent per year going forward, and nothing in this result changed that view.

What should investors be watching from here?

Mobile revenue and earnings remain key, particularly competition and what competitors are doing on pricing. On the cost side, we’re watching what Telstra can continue to do to drive earnings leverage.

Then there are factors outside its control, including Starlink and the fallout from the July outage, both in terms of customers and potential regulatory consequences.

The ACCC inquiry into the mobile industry is another uncertainty. There’s a wide range of potential outcomes. 

One of the bigger risks would be the ACCC declaring the regional mobile network, which could give Optus and Vodafone access to Telstra’s regional network. 

That network is a key competitive advantage for Telstra, so such a change could have implications for market share, revenue and earnings.

What could you be wrong about?

One area is Starlink. My view is that satellite-to-mobile becoming a genuine competitive threat is possible, but not probable, and still a long way away. I could be wrong. Elon Musk talks a big game, but he has the balance sheet to deliver on it.

The other assumption is that mobile is largely non-discretionary. 

It’s essential infrastructure, which gives Telstra a degree of pricing power. But if prices rise too far, customers could trade down to cheaper products.

We’re already seeing some of that, potentially driven by price rises and cost-of-living pressures, but not at a level that concerns us. 

Telecommunications also represent a relatively small proportion of household spending, and most people now see their mobile, for better or worse, as an extension of themselves.