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Should you buy Telstra Corporation Ltd at today’s share price?

Source: Telstra presentation

Telstra Corporation Ltd (ASX: TLS) shares are currently trading at around $5.36 per share and have now lost more than 13% in the past six months. By comparison, the S&P/ASX 200 (Index: &AXJO) (ASX: XJO) is down just over 8%.

Why the big fall?

Telstra’s share price has dropped from a five-year high of $6.74, which it reached in February as the market took off. Since then, a number of factors have contributed to the falling share price.

The biggest factor is the general fall in the market and Telstra is one of the largest companies on the ASX, so it tends to get sold off when the market falls. Some recent adverse news has also acted like an anchor on the share price. The Australian Competition and Consumer Commission (ACCC) reduced wholesale access prices to Telstra’s copper network by 9.4%, which will cost the telco around $80 million.

A soft profit outlook in August forecasting low-single digit growth in earnings was also to blame. The problem for the telco with a $65 billion market cap is that it struggles to generate meaningful growth in Australia where it dominates the mobile sector.

An opportunity

At the current price, Telstra is offering a 5.7% fully franked dividend, which is likely to be fairly stable in the years ahead. Grossed up, that’s more than 8%, and investors don’t need much capital growth to generate annual returns of 10% or higher.

The overlooked businesses

What many investors fail to grasp is that Telstra has its fingers in a number of pies, including a substantial holding in NASDAQ-listed Autohome, China’s largest automotive classifieds website – similar to Australia’s Carsales.Com Ltd (ASX: CAR). The company also generates high revenue growth from a number of its smaller businesses including Global Enterprise and Services and Telstra Wholesale and even Foxtel, which saw more than $3 billion in revenues last financial year. Add in eHealth initiatives, media and content, Telstra TV and Telstra has plenty of irons in the fire.

Earnings growth might be slow now, but there’s that lovely dividend on offer while these businesses mature.

Foolish takeaway

For investors looking for yield, it’s hard to go past the giant telco. Today’s share price appears to be an excellent opportunity to add Telstra to your portfolio or top up your holding.

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Motley Fool contributor Mike King owns shares in Telstra and Carsales.com. You can follow Mike on Twitter @TMFKinga

Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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