How far can the Telstra Corporation Ltd (ASX:TLS) share price fall? So far the price has fallen 37% in a year, which includes a 1% bounce at the time of writing.
UBS believes that Telstra cannot support its ‘A’ credit rating, so if it is downgraded to ‘A-‘ and even lower long term, the interest payments on debt are going to rise. Finding the funds to pay for a higher interest bill will be restricted by the fact that the company has already committed to spending $3 billion on upgrading and modernising its network. If this is suspended, competitors are likely to gain ground.
Cutting dividends may be the other way. UBS believes that Telstra may find it necessary to have progressive dividend cuts from FY20. The current UBS forecast for FY18-19 dividends per share is held at 22 cents, FY20 falls to 18 cents, and FY21-FY22 falls to 14 cents.
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Motley Fool contributor Rosemary Steinfort owns shares of Telstra Limited. The Motley Fool Australia owns shares of and has recommended Telstra 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.
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