Telstra Corporation Ltd (ASX: TLS) shareholders between early 2015 and 2018 have endured a painful ride with dividend cuts and NBN being hot topics. However, after hitting a decade low of $2.74 at the end of 2018, the Telstra share price has now recovered to $3.31, trading near its 52-week high.
Is the Telstra share price a buy?
Possibly.
Telstra is currently trading slightly below 11 times earnings, which appears cheap compared to the telecommunications industry which is currently trading just below 20 times earnings. Despite this value shown, when you account for the recent half-year announcement showing that NPAT has decreased by 27.4% to $1.2 billion, this share price value doesn't come at a surprise.
On the other hand, since its dividend cuts, Telstra has managed to obtain a more sustainable payout ratio. The dividends paid out to shareholders from net income totals 73%. This is much more sensible than the telecommunications industry's 91% payout. Telstra is also making steady progress with its Telstra2022 vision which operates on four key pillars: to simplify the products offered, offer alternate options upon NBN rollout, improve the experience for customers and cut costs throughout the business.
Telstra has added plenty of new customers in the mobile services and internet fixed services businesses which are bound to expand the company's service revenue. Additionally, the cost reduction plan is progressing well with a $162 million cost reduction in underlying fixed costs for the recent half. From FY2016 till the recent half, Telstra has managed to cut $900 million in costs with guidance of achieving $2.5 billion net productivity improvement by FY2022.
The 5G expansion should play into Telstra's favour as it remains the largest telecommunications service provider in Australia. Even if Vodafone and TPG Telecom Ltd's (ASX: TPM) proposed merger is successful, Telstra has a dominant market share of 41.3% and shouldn't be worried about losing it anytime soon due to its extensive coverage that competitors lack. Many individuals in remote areas still exclusively rely on Telstra for staying connected.
Foolish takeaway
For investors that have owned Telstra shares as part of their portfolio for a while, now could be a good time to seriously consider averaging down your initial purchase price. If Telstra manages to stay on track or increase its cost reduction plan, the Telstra share price may soon be back where shareholders want it.
For other dividend stock ideas, be sure to check out these 3 Top Dividend Stocks for 2019.
