Is now the time to buy Telstra Corporation Ltd shares?

Is it time to buy Telstra Corporation Ltd (ASX:TLS) shares for its generous dividend?

| More on:
a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

I think it is fair to say that Telstra Corporation Ltd (ASX: TLS) has quickly become one of the most unloved shares on the Australian share market.

Concerns over NBN margins, a cut to its dividend, and a sizeable future earnings gap have all weighed heavily on investor sentiment during the last 12 months.

This recently led to the telco giant's shares falling to a multi-year low of $3.06, a massive 32% lower than its 52-week high of $4.52.

Is now the time to buy Telstra's shares?

I think that Telstra's shares are very attractive at the current price, especially given the generous dividend yield that its shares provide at these levels.

Based on its fully franked 22 cents per share annual dividend, Telstra's shares offer a market-beating 7.1% yield right now.

I expect this to lend some support to its shares and can't imagine them being dragged much lower from here, all other things being equal.

In fact, the only thing that I think would take its shares lower from this level over the next few years would be another dividend cut.

But I feel confident that the 22 cents per share payout is sustainable over the next few years thanks to a potential write-down of the NBN by the Federal Government, the arrival of 5G internet, and the company's cost cutting opportunities.

I'm not alone in thinking this way. A note out of Goldman Sachs a couple of month ago reveals that the broker remains positive on Telstra's opportunity to reduce its inflated cost base through the digitalisation and simplification of its business.

Thanks partly to this, the broker has forecast Telstra to continue paying a 22 cents per share dividend until at least FY 2020.

Incidentally, the broker has a buy rating and $4.33 price target on its shares. Whereas it has a sell rating and $4.70 price target on TPG Telecom Ltd (ASX: TPM) shares and a neutral rating and $2.70 price target on the shares of Vocus Group Ltd (ASX: VOC).

I would agree with Goldman on these ratings and think investors ought to consider Telstra today.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Telstra Limited, TPG Telecom Limited, and Vocus Communications Limited. 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 Scott Phillips.

More on ⏸️ Investing

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest
ETFs

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

Two people in suits arm wrestle on a black and white chess board.
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »

⏸️ Investing

Why Fox (NASDAQ:FOX) might hurt News Corp (ASX:NWS) shareholders

News Corporation (ASX: NWS) might be facing some existential threats from its American cousins over the riots on 6 January

Read more »