Why is the Telstra share price sliding lower on Wednesday?

A man casually dressed looks to the side in a pensive, thoughtful manner with one hand under his chin, holding a mobile phone in his hand while thinking about something.A man casually dressed looks to the side in a pensive, thoughtful manner with one hand under his chin, holding a mobile phone in his hand while thinking about something.

The S&P/ASX 200 Index (ASX: XJO) has opened sharply lower so far this Wednesday. At the time of writing, the ASX 200 seems to have gotten out of the wrong side of the bed, with the flagship ASX index down a rather depressing 0.53% to just above 7,220 points. But let’s talk about the Telstra Group Ltd (ASX: TLS) share price.

Telstra shares are seemingly faring even worse than the broader market. This ASX 200 blue-chip share closed at $4.16 a share yesterday.

But this morning, Telstra shares opened at just $4.05 each, and are currently going for $4.055. That’s a nasty 2.52% drop from yesterday’s closing price.

So what’s going on with Telstra shares this Wednesday that would elicit such a dramatic underperformance of the broader market today?

Why is the Telstra share price getting smashed by the ASX 200 today?

Well, investors shouldn’t get themselves into too much of a twist over this drop. That’s because Telstra shares are falling today for what might just be the best possible reason to have your shares drop in value. Telstra has just traded ex-dividend for its latest shareholder payment.

Yes, the Telstra share price has just gone ex-dividend. Last month, the company reported its latest earnings, covering the six months to 31 December 2022.

As we covered at the time, this saw the telco announce an 11.4% rise in earnings before interest, tax, depreciation and amortisation (EBITDA) to $3.9 billion, as well as a healthy 25.7% increase in net profit after tax (NPAT) up to $900 million.

That enabled Telstra’s earnings per share (EPS) to surge 27.1% to 7.5 cents per share, which in turn allowed the telco to announce an increase to its next interim dividend.

Investors will receive Telstra’s upcoming interim dividend of 8.5 cents per share, fully franked, on 31 March later this month. That’s up from the company’s last interim dividend of 8 cents per share.

This is the second earnings report in a row that Telstra has raised its dividend after the telco hiked its final dividend last year by the same amount. It’s also the first time in seven years that investors have enjoyed two consecutive dividend increases from Telstra. So 31 March will be a happy day indeed.

But only for investors who already hold Telstra shares. The company has traded ex-dividend today, which means that anyone who buys Telstra shares from today onwards will miss out on this latest dividend.

Why is there a drop before a dividend is paid?

As we warned yesterday, when a company trades ex-dividend, it cuts off any new investors from receiving said dividend payment. So investors who bought Telstra yesterday are entitled to this next dividend. Those who buy today are not.

This is why we are seeing a big drop in the value of Telstra shares right now. It reflects the reality that Telstra is now nominally less valuable to investors since they are now ineligible to receive the company’s next payment.

This is a very normal situation when a company goes ‘ex-div’, particularly for a dividend heavyweight like Telstra.

At $4.055 a share, the Telstra share price is currently up by 2.65% year to date: 

At this share price, the ASX 200 telco now has a dividend yield of 4.19%

The post Why is the Telstra share price sliding lower on Wednesday? appeared first on The Motley Fool Australia.

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Motley Fool contributor Sebastian Bowen has positions in Telstra Group. 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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