The Telstra Corporation Ltd (ASX: TLS) share price seems to have stabilised in the $3.70–$3.90 range, opening this morning at $3.81.
Telstra did manage to hit a new 52-week high of $3.91 just last week, which is Telstra's highest level since August 2017. Telstra shares have capped off a marvellous run over the past 7 months, climbing from an all-time low of $2.62 in December last year to the high reached last week, a rise of 49% (not including dividends). So although Telstra has delivered some solid capital gains, is it a good buy for income today? Let's have a look.
A history of Telstra's dividend
Telstra used to be THE dividend share. Anyone who was anyone in the income investing world would have Telstra shares in their portfolios and for good reason. For most of its post-float history, Telstra's dividend yielded around the 10% mark (grossed-up) – it was almost viewed as a turbo-charged term deposit.
Telstra's dividend was 28 cents per share by 2013 and grew all the way up to 31 cents per share by the time 2017 came around. But the Telstra of 2017 had become a far different company to the one that investors were used to. Over the preceding five years, Telstra was forced to sell off its lucrative copper network to the new NBN Co and would no longer be able to on-sell its own network to its competitors. This put Telstra (for the first time) on a level competitive playing field with other telcos and cut off a healthy river of profits.
Predictably, this led to Telstra reducing its dividend heavily over the last two years, and it sits today at 16 cents per share (assuming a repeat of the interim dividend of 8 cents per share from 1H19 later this year).
Is Telstra still a buy for income?
Even at 16 cents per share, Telstra is yielding a grossed-up 6% dividend on today's prices, which is still a healthy yield that would smash any term deposit out there. I expect the dividend to stabilise at this 16-cents-per-share level going forward, but an increase is unlikely, at least for a few years.
I consider Telstra a defensive stock as we all need access to internet and phone services in our modern world, regardless of economic conditions. Thus, I believe Telstra is a solid income stock, particularly for retirees and anyone who invests for income.
