Telstra's Dividend Surprise Lifts Shares to Nine-Year Highs as ASX Telcos Hit Record

Telstra (ASX: TLS) has long been the stock that sits quietly in almost every Australian portfolio. It pays its dividend, does its job, and rarely makes headlines. But on 19 February, Telstra did something that got the market's attention. It delivered a bigger dividend than almost anyone expected, and its shares jumped nearly 5% to their highest level since 2017. The broader ASX telco sector followed, surging 2.25% on the day.

Why Telcos Are Back in Favour

The timing of this rally is no coincidence. The RBA hiked interest rates to 3.85% in early February, inflation is proving hard to shake, and the broader reporting season has been rough for growth and tech stocks. In that environment, investors naturally rotate towards companies that offer steady cash flow and reliable payouts.

Telecoms tick both boxes. Their customers pay monthly bills, revenue is predictable, and switching providers is a hassle most people avoid. That defensive quality is exactly what the market is rewarding right now.

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Inside the Half-Year Numbers

Telstra's first-half FY26 result showed a business that is growing where it matters and cutting costs where it can.

Net profit rose 9.4% to A$1.12 billion, while cash earnings per share climbed 19.7% to 14 cents. The company also trimmed A$179 million from underlying operating expenses, helping earnings grow faster than revenue. CEO Vicki Brady described this as "positive operating leverage," a sign the business is becoming leaner without sacrificing performance.

The star of the show was mobile. Services revenue in that division grew 5.6%, with postpaid ARPU up 4.8% as recent price increases stuck without driving meaningful churn. Prepaid subscribers grew 8.3%, and IoT connections jumped over 24%. Mobile is now the engine that powers Telstra's earnings.

The Dividend That Beat Expectations

The interim dividend came in at 10.5 cents per share, split as 9.5 cents franked and 1 cent unfranked (90.5% franking). That is a notable shift from the 100% franking Telstra investors are used to, reflecting the growing gap between cash earnings and accounting profits. Still, analysts had pencilled in just 9.7 cents. An 8% beat on dividend expectations is the kind of surprise that moves a stock price, especially for a company whose shareholders are overwhelmingly focused on income.

On top of the dividend, Telstra lifted its share buyback programme from A$1 billion to A$1.25 billion, having already completed A$637 million in the half. The company is returning capital in two ways: paying more cash directly to shareholders and reducing shares on issue, which supports future earnings per share growth.

The ex-dividend date is 25 February 2026, with payment on 27 March. If you want to receive this payout, you need to hold Telstra shares before the close of trading on 24 February.

What Could Go Wrong

No stock is without risk, and Telstra's valuation is the obvious one to flag. The shares now trade at around 24 times earnings, well above the 10-year average of 18 times. Wilson Asset Management, which holds the stock, described it as "fairly valued" after the result. That is a polite way of saying the easy gains may be behind us.

Competition in broadband is another concern. Telstra lost roughly 95,000 NBN subscribers during the half as smaller, cheaper rivals continue to chip away at its market share.

What This Means for Investors

Telstra's result confirms it remains one of the most dependable income stocks on the ASX. The dividend beat, expanded buyback, and strong mobile momentum are all genuine positives. But at current prices, investors are paying a premium for that reliability, and future returns may come more from dividends than share price gains.

For a broader look at where markets are heading and which stocks our analysts are watching, download ASR's free Top-3 Stocks and Market Outlook Report.

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