Is the Telstra Corporation Ltd (ASX: TLS) share price worth buying for the dividend?
I think it can be very dangerous if you focus on the dividend yield before any other aspect of a business. A dividend is only as secure as the profit, cashflow and balance sheet.
As we've seen from Telstra, a dividend can be cut (and cut again) even if the dividend has been solid in the past.
The big question is whether Telstra's earnings has stopped falling.
The national broadband network (NBN) has been pretty rough for the telco giant. It lost its cashflow cow of the cable infrastructure and its profit margins are now under pressure.
It seems nearly anyone can offer NBN services if they want to, there are tons of competitors to Telstra. The list of ASX and overseas listed competitors alone is challenging, think of Vodafone, Optus, Vocus Group Ltd (ASX: VOC), Amaysim Australia Ltd (ASX: AYS), TPG Telecom Ltd (ASX: TPM) and so on.
It's not a lot better in the mobile space. Telstra is winning more customers but it is having to do so with bigger data packs and therefore lower profit margins.
The tough competition is why Telstra's half year net profit after tax (NPAT) fell by 27.4% and the dividend had to be cut by 27.3%.
Unless the NBN cuts its access charge it is unlikely that Telstra's NBN problems will change any time soon.
The hope for the future is that 5G unlocks a treasure box of new services that people and business will pay telcos to access.
Will automated cars or the Internet of Things give Telstra the earnings boost it needs? I'm really not sure. It's not as though the Aussie consumer has a lot more disposable income to spend at the moment.
Foolish takeaway
Telstra is trading at 13x FY20's estimated earnings with a likely grossed-up dividend yield of 6.8% assuming Telstra pays another dividend of 8 cents per share in a few months.
I think there are far better ideas for dividends and growth.
