At today’s Telstra Corporation Ltd (ASX: TLS) share price, is it good dividend share to buy?
How’s the Telstra dividend going?
During the crazy last 12 months, Telstra was one of the limited number of blue chips to not cut the dividend. The telco maintained the dividend at $0.16 per share for FY20.
Names like Commonwealth Bank of Australia (ASX: CBA), Transurban Group (ASX: TCL), Macquarie Group Ltd (ASX: MQG) and Woodside Petroleum Limited (ASX: WPL) all cut their dividends.
In-fact the Telstra dividend has been very consistent over the last couple of years, going back to 2019. But going back a little further, the annual dividend was $0.22 per share in 2018 and $0.31 per share in 2017.
Why is the Telstra dividend so much smaller?
Telstra’s profit has been heavily impacted by the shift to the NBN – its margins are much lower, even if its market share of household broadband hasn’t changed that much. The NBN is now taking the lion’s share of the money.
The telco is still making decent profit from its mobile plans division, but that’s also suffering from low-cost competition which has forced Telstra to reduce its prices and increase the data inclusions. Names like TPG Telecom Ltd (ASX: TPG) and Amaysim Australia Ltd (ASX: AYS) have been some of the low-priced competition.
What can the telco do?
There are two or three main things that Telstra can do.
Firstly, within its T22 strategy it is trying to heavily reduce costs from the business seeing as the revenue side of the company isn’t doing much. T22 involves thousands of jobs going, as well as the sale of non-core assets.
Another key idea is for it to take market share in the home broadband space and achieve higher margins. It can achieve this with wireless broadband. In other words, home internet powered by 5G.
The final focus is winning broadly with 5G. A new wave of technology opens up new revenue and profit possibilities for Telstra. Time will tell how much money Telstra can make with 5G, or whether it’s just going to turn into another race to the bottom on low costs for customers over time.
Is the Telstra share price a buy for the dividend?
At the moment, Telstra offers a fully franked dividend yield of 4.7%. Clearly, that’s not a bad yield.
However, there is no growth of the profit or dividend. I think that’s not an encouraging sign. I want to see good total returns from the ASX dividend shares that I look at. Dividends are one-off payments and fade into history once paid. In my opinion, it’s important for the profit growth potential to be there – I don’t see solid organic revenue growth for Telstra over the next couple years or even the foreseeable future.
