Are Telstra Corporation Ltd (ASX: TLS) shares a buy for the dividend yield?
Telstra is Australia’s largest and oldest telecommunications business, having built the first telegraph line in 1854. Today, it provides more than 17 million retail mobile services, nearly 5 million retail fixed voice services (e.g. home phones) and 3.6 million broadband services. It also has operations stretching across eHealth, network applications and subsea cabling. Starting in 1997 (until 2006), the Australian Government sold Telstra to Australian investors via the ASX. The second batch of Government share sales, called “T2”, was conducted in 1999 at $7.40 per share.
Are Telstra Shares A Buy For The Dividend Yield?
Based on the Telstra half year dividend cut of 27% to 8 cents per share, it’s likely that Telstra is going to pay an annual dividend of 16 cents per share, which is pretty hefty fall compared to the 22 cents per share that was paid a year earlier.
Based on the current share price of $3.22 it has a fully franked dividend yield of 5%, which isn’t bad. But, you could have said that the “current” dividend yield has been attractive ever since February 2015. Since then the dividend and share price have halved.
I’m certainly not predicting that the dividend and share price will halve again. Telstra may have actually hit the low point over the past year.
But I do think that investors need to be focused on more than just the upfront dividend yield. Sustainable earnings growth is what allows a dividend to be maintained and increased over time.
Telstra’s new dividend policy for dividends is for the payout ratio to be between 70% to 90% of underlying earnings and also return 75% of future net one-off NBN receipts to investors.
Therefore if earnings keep falling then there’s the dividend could keep falling.
Telstra keeps improving the value of its mobile plans for customers, but that just puts more pressure on the profit margins.
Instead of Telstra, I would much rather buy proven shares in the free report below.
3 proven ASX shares with more reliable dividends than Telstra
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