MENU

The Telstra share price is up 2.5% today: Should you be buying?

In early afternoon trade the Telstra Corporation Ltd (ASX: TLS) share price has been one of strongest performing large cap shares on the local market.

At the time of writing the telco company’s shares are up by 2.5% to $2.93.

While this is positive, this gain still means that the Telstra share price is down by a disappointing 22% since this time last year.

Why is the Telstra share price on the move today?

With no news out of the telco giant or broker notes that I’m aware of, the catalyst for this gain is a bit of a mystery,

However, prior to today Telstra’s share price had fallen 7.5% in the space of a month.

This could mean that bargain hunters have swooped in today on the belief that its shares have been oversold.

Are Telstra’s shares cheap?

While I think that Telstra’s shares look to be good value at these levels, a lot will depend on what happens with its dividend next month.

On February 14 Telstra will release its half year results and announce its interim dividend. Given the competitive trading conditions and low NBN margins, there’s a lot of speculation that the Telstra board will be forced to cut its 22 cents per share dividend in FY 2019.

As I mentioned here, Citi expects a dividend cut to 16 cents per share, Morgans has predicted a 17 cents per share dividend, and UBS also expects a 16 cents per share dividend.

Based on a dividend of 16 cents per share, Telstra’s shares currently provide a forward yield of just under 5.5% at the current level.

In the event of a dividend cut, I suspect that its shares might pull back around 10% to ~$2.65, where its shares would then offer a 6% dividend yield.

Because of this, I intend to stay away from Telstra’s shares until its half year results have been released.

And given the tough trading conditions in the industry, I wouldn’t be in a rush to invest in rivals Amaysim Australia Ltd (ASX: AYS), TPG Telecom Ltd (ASX: TPM), or Vocus Group Ltd (ASX: VOC) just yet.

But keep your eyes peeled for a potential NBN write-down by the government this year, as that might allow a meaningful cut to wholesale prices and improvements in margins.

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. The Motley Fool Australia has recommended 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.

The 5 mining stocks we’re recommending in 2019…

For decades, Australian mining companies have minted money for individual investors like you and me. But if you believe the pundits and talking heads on TV, those days are long gone. Finito! Behind us forever…

We say nothing could be further from the truth. To earn the really massive returns, you’ve got to fish where others aren’t fishing—and the mining sector could be primed for a resurgence. That’s why top Motley Fool analysts just revealed their exciting new research on 5 ASX miners they believe could help you profit in 2019 and beyond…

Including:

The best way we see to play the global zinc shortage… Our #1 favourite large-cap miner (hint: it’s not BHP)… one early-stage gold miner we think could hit the motherlode… Plus two more surprising companies you probably haven’t heard of yet!

For free access to our brand-new research, simply click here or the link below. But be warned, this research is available free for a limited time only, and we reserve the right to withdraw it at any time.

Click here for your FREE report!