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Why the Telstra share price is 2.5% ahead of the S&P/ ASX200 Index today

Credit: Telstra

The Telstra (ASX: TLS) share price may have consistently underperformed the S&P/ ASX200 Index (ASX: XJO) over the past 18 months, but today it’s up 1.5% and around 2.5% ahead of the benchmark S&P/ ASX200 Index that is down 1%.

Telstra has released no specific news to the market since revealing it spent $368 million on securing 5G mobile network frequency in preparation for the next generation of high-speed mobile networks that could help it maintain and win mobile market share.

The Telstra share price is up today but has been falling for a long time as many investors sold out of the stock several years ago after Telstra warned it would lose around $3 billion in profits as a result of the government nbn infrastructure network.

As a consequence of Telstra’s inability to replace these lost profits it also announced it would cut its dividend payout ratio from nearly 100% of profits to 70% to 90% in order to give it more room to reinvest in other growth opportunities.

Telstra’s problems resulted in a 30% dividend cut in FY 2018 to 22 cents per share, with the share price collapsing in half since August 2015. The problem for investors is that many expect another dividend cut in FY 2019 as Telstra struggles to grow revenue or profit. Telstra’s management itself has not ruled out the potential for another dividend cut in the next financial year.

However, the share price may be rising today in anticipation of a Labor federal election win mean a write down in the value of the NBN network. This could give the opportunity for resellers like Telstra to charge less for consumer access. This in turn could boost the profit margins of the likes of Telstra, Vocus Group Ltd (ASX: VOC and TPG Telecom Ltd (ASX: TPM).

Motley Fool contributor Tom Richardson owns shares in TPG and Vocus.

You can find Tom on Twitter @tommyr345

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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