Is the Telstra Corporation Ltd (ASX:TLS) share price a buy?

The Telstra Corporation Ltd (ASX: TLS) share price has risen by 8.2% over the past six months, is it now a buy?

Telstra’s share price has fallen by just over 50% since the start of FY16 when high yield shares were all the rage due to record low interest rates. We are still in an environment of extremely low interest rates, however those high-yield shares like Telstra and the banks are much lower due to industry-specific problems.

The big telco, along with its larger peers like TPG Telecom Ltd (ASX: TPM) face competition on all sides due to the NBN. With any small telco able to offer the same product, prices and margins have dropped.

During the GFC years investors could rely on a huge fully franked dividend hitting their bank account every year.

However, a dividend is only as reliable as the underlying earnings. Telstra’s earnings have come under fire due to both the NBN and low-cost mobile competitors offering large data bundles. There is little additional cost for a telco to offer a 1GB or 10GB package.

If a business is struggling to grow its top line, or even maintain it, then cutting costs is usually the next best thing. Telstra has an ambitious plan to save about $2.5 billion in costs which could help the bottom line.

However, there’s only so much you can do with cost cutting to grow profit. Eventually it has to come from revenue growth.

The best hope for Telstra is the introduction of 5G with automated cars and the Internet of Things. But who knows if it will be the telcos that capture most of the value-add of the services. It could be exactly like 4G where the other companies such as Google get the benefits.

Foolish takeaway

Telstra is currently trading at 14x FY19’s estimated earnings with a grossed-up dividend yield of 10.4%. Until we can see how Telstra’s profit can grow with 5G I wouldn’t want to buy its shares – it may be stuck around $3 for a while.

However, these top large caps could be exactly what your portfolio needs to beat the market.

Top 3 ASX Blue Chips To Buy For 2019

For many, blue chip stocks mean stability, profitability and regular dividends, often fully franked..

But knowing which blue chips to buy, and when, can be fraught with danger.

The Motley Fool’s in-house analyst team has poured over thousands of hours worth of proprietary research to bring you the names of "The Motley Fool’s Top 3 Blue Chip Stocks for 2019."

Each one pays a fully franked dividend. The names of these Top 3 ASX Blue Chips are included in this specially prepared free report. But you will have to hurry. Depending on demand – and how quickly the share prices of these companies moves – we may be forced to remove this report.

Click here to claim your free report.

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Telstra Limited. The Motley Fool Australia has recommended TPG Telecom 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.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.