The share price of Telstra Corporation Ltd (ASX: TLS) appears to have found a bottom – for now at least. This might be in part because it's seen as the "least dirty shirt" in the embattled telecommunications sector.
Australian telecommunications companies have been on the nose due largely to margin pressure from the NBN with the likes of TPG Telecom Ltd (ASX: TPM) and Vocus Group Ltd (ASX: VOC) falling in sympathy with Australia's largest telco.
Vocus has other issues, but that's another story for another time.
Telstra's size and the payment it receives from the NBN for giving up its copper network has afforded it better protection and there are reasons to think that Telstra is looking good value at these levels given its forecast yield of 6.4% (before franking) for the current financial year.
But there is a viable alternative to Telstra that is hidden in plain view of investors. I am referring to Spark New Zealand Ltd (ASX: SPK), which used to be called Telecom New Zealand.
It doesn't have the issues associated with the NBN, and just as importantly, it is expected to pay a fatter dividend than Telstra.
Spark has issued guidance for FY18 with management aiming to pay a regular dividend of 22 cents a share along with an additional 3 cents as a special dividend. This means the stock is trading on a net yield of 7.6%.
The regular dividend is fully franked and the special dividend is 75% franked.
In contrast, Telstra is tipped to pay a dividend of 22 cents in the current financial year, which gives it a net yield of 6.4%.
Special dividends aren't supposed to be a regular feature, so investors shouldn't normally be banking too much on getting that in future periods.
However, Spark has been paying a 3 cents special dividend for the past two years and has suggested it will continue to do so in FY18. The board is well aware that this "special dividend" is now part of market expectations and that may make it reluctant to cut that going forward.
Regardless, FY18's special dividend and Spark's lower share price (which lifts its regular yield) means the stock may be a better alternative to Telstra, or at least, it might be a good idea to spread your capital between the two if you are looking to generate income from the telecommunications sector.
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