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At $5.40 are Telstra Corporation Ltd shares a buy?

Credit: Telstra

The Telstra Corporation Ltd (ASX: TLS) share price has drifted blissfully back towards the compelling $5 mark.

Since popping to a 10-year high of $6.74 in February, Telstra’s share price has retreated to just $5.40 today.

Source: Google Finance

Source: Google Finance

Are Telstra shares a buy?

While a falling share price can be bad news for some, it can be great news for many. Specifically, investors chasing relative safety, a solid income and modest long-term growth potential should now be running the ruler over Telstra shares.

Indeed, Telstra’s falling share price has in fact boosted its income potential far higher than it was just six months ago. Currently, Telstra shares trade on a trailing dividend yield of 5.8% fully franked – that’s 8.2% grossed up!

Further, a falling share price tips the risk-reward scale favourably for buyers. Previously, I said a good entry point into Telstra would be around $5. My targeted buy price was based on my fair value estimate, which lies between $6.40 and $6.50. Of course, you can take that with a pinch of salt, since stock valuations are based on long-term forecasts, which are based on assumptions, which are subjective by nature.

Nevertheless, the closer Telstra shares get towards $5, the more compelling an investment in Australia’s largest telecommunications company undoubtedly becomes.

A better buy than Telstra shares

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Motley Fool contributor Owen Raskiewicz has no position in any stocks mentioned.

Owen welcomes your feedback on Google plus (see below), LinkedIn or you can follow him on Twitter @ASXinvest.

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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