Brokers have passed judgement over our largest telco with the Telstra Corporation Ltd (ASX: TLS) share price outperforming the the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index this afternoon.
The TLS share price jumped 1% during lunch time trade to $3.17 even as other stocks in the sector like the Vocus Group Ltd (ASX: VOC) share price and TPG Telecom Ltd (ASX: TPM) share price fell.
The rally in Telstra's share price marks a turnaround from yesterday's 2.2% fall after the telco posted its first half profit results and announced a bigger than expected cut to its interim dividend to 8 cents a share (including a 3 cent per share special dividend).
This implies a FY19 distribution of 16 cents, which translates to around 7.2% yield if franking is included.
You could say Telstra's results had something for everyone. Brokers have largely kept their recommendations on the stock as the results hasn't swayed Telstra supporters or its critics to change their view on the stock.
What the bulls are saying
Morgans believes the stock has found a base now that management has shown its hand in regard to the half year dividend (even though it didn't give any clues on the full year). The movement In the Telstra share price certainly suggests that the stock may have found its feet.
"This result is debatably as bad as it gets so investing in TLS requires a view on where the business will be in a few years," said Morgans, who reiterated its "add" recommendation on the stock with a price target of $3.62 a share.
"Our view is that the current highly competitive environment is unsustainable. TLS is the best placed to weather the storm and leverage new technologies like 5G. This is why we are buyers."
Deutsche Bank also remains a fan. It noted that Telstra's results were ahead of its expectations for both Mobile and Fixed, although it was disappointed by the company's weaker than expected cash flow.
"We continue to view Telstra as a company in transition, with strong fundamental support on our conservative cost-out projections," said Deutsche, who kept its "buy" call and $3.70 per share price target on the stock.
"Importantly, we expect Telstra to outperform consensus on dividends, where we currently forecast 18c DPS [dividend per share] post-nbn roll-out in FY22, which compares to consensus of 16c."
What the bears are saying
However, Telstra has kept its share of sceptics. Citi Group maintained its "sell" recommendation on the stock as it doesn't believe we've seen the last of its earnings decline.
"Earnings should continue to decline through to FY21e as the full impact of the NBN comes through and mobile rebases to remove remaining out-of-bundle charges," said Citi, which has a $2.70 target on Telstra.
"The T22 productivity gains will likely only partly offset this through FY20/21, although we do see scope for growth from FY22 onwards."
UBS has also cast doubt on Telstra's ability to sustain its 16 cents a share dividend over the next few years as it kept its "neutral" call on the stock with a $3/share target.
Foolish takeaway
Whether you should buy or sell Telstra comes down to your view on management's ability to keep paying a 16 cents dividend.
The fact is, no one really knows and that's why we have divergent recommendations from the various brokers.
The "16 cents" is now market consensus and I am disappointed as I was hoping its dividend will settle at 17-18 cents a share.
I think most investors can live with the 16 cents (or ~7% yield) so the stock should be able to hold its ground (or even rise further if the RBA cuts interest rates).
However, bearish brokers like Citi believe the dividend could keep falling to 12 cents a share in FY21, and that could mean further potential downside for the stock.
