The Telstra Corporation Ltd (ASX: TLS) share price has traded higher in 2019, slightly outpacing the S&P/ASX 200 (INDEXASX: XJO).
Including more than Telstra’s share price and factoring in its generous dividends, you’ll find that an investment in Telstra is, so far in 2019, actually well ahead.
From where I sit, Telstra’s generous fully franked dividend is exactly the reason why so many investors flock to the telecommunication giant’s shares. But there are a few problems with that…
As I wrote a few months back, “Why Telstra Could Cuts Its Dividend In 2019“, Telstra’s business is under pressure from the NBN rollout and in mobile from the likes of TPG Telecom Ltd (ASX: TPM) and Singapore Telecommunications Ltd (SGX: Z74).
Recently, Telstra cuts its dividend to reflect the tougher operating conditions and challenges ahead.
Why Dividend Investors Have Telstra Corporation Shares Wrong
As Rask Media’s Sam Evans wrote in “Is My Dad’s Obsession With Telstra’s Dividend All It’s Cracked Up To Be“, dividend investors may have been poorly guided into buying its shares on account of its dividends at the loss of growth potential.
I’ll take a slightly different approach and say that now is not the time to be focusing on Telstra’s dividend. Not because Telstra could cut the dividend again, its shares are expensive, Labor’s franking credit plan is laughable or that I have some crystal ball.
But if your goal is income from your investments you don’t need to buy Telstra shares because there are low-cost index funds and ETFs that’ll get the exposure for you, while spreading your risk across dozens, hundreds or even thousands of shares.
For example, the best Australian shares ETFs can track the ASX 200 and yield over 4.5%, net of the management fee and costs.
In finance, we might call the risk of picking a dodgy dividend stock “specific risk” or “diversifiable risk”. That’s a fancy way of saying, diversifying might help lower the risks specific to Telstra’s business while also keeping plenty of ‘reward’ on the table.
That’s why I own an ASX 200 ETF. And if I wanted growth + dividends I’d look to faster-growing shares than Telstra.
Ultimately, this is why I think dividend investors have Telstra shares wrong.
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