Based on the current Telstra Corporation Ltd (ASX: TLS) share price, the telco giant's shares provide investors with a fully franked 7.5% dividend yield on a trailing basis.
While this is certainly very generous and very tempting in a low interest rate environment, I'm concerned that it could prove to be a dividend yield trap.
Given the tough trading conditions that it is facing, I would be very surprised if Telstra were able to generate enough free cash flow to maintain its 22 cents per share dividend in FY 2019.
Instead, I think that a dividend around 16 cents per share is more likely, which reduces its yield to 5.5%.
Although this yield is still very generous and vastly superior to the All Ordinaries index average dividend yield of 4%, I fear there is a danger that its shares could de-rate lower if the company cuts its dividend to 16 cents per share.
In light of this, I think the prudent thing for investors to do at this point is to hold fire and wait for the release of its half-year results in February. I expect the company will reveal its dividend plans for the year with this release.
In the meantime, I would suggest income investors look at these two dividend shares instead:
Dicker Data Ltd (ASX: DDR)
I think that this computer software and hardware distributor could be a good option for income investors. This year the Dicker Data board intends to increase its dividend to a fully franked 18 cents per share, which equates to a yield of approximately 6.3%.
Rural Funds Group (ASX: RFF)
Rural Funds is an agriculture focused real estate property trust. I believe it is a great alternative due to its growing portfolio of income generating agriculture properties across different geographies and industries. Its shares currently provide a trailing 4.6% dividend.
