Is Telstra Corporation Ltd (ASX: TLS) a good long-term investment at the current share price?
As one fund manager recently said, you're not going to get rich from owning Telstra shares. But that certainly doesn't mean it can't potentially create solid returns from here.
There are a certain group of blue shares on the ASX that should benefit from Australia's rising population. As long as the company maintains its profit margins and market share then a growing population could help it grow revenue and profit.
Telstra is one of those businesses, along with companies like Wesfarmers Ltd (ASX: WES), Coles Group Limited (ASX: COL) and Woolworths Group Ltd (ASX: WOW).
If Telstra can keep growing its total subscription numbers across home internet, mobile and businesses then it could be a decent share idea.
Things look particularly promising over the next decade as the next era of telecommunications starts with 5G. It's hard to imagine the things we'll be doing in a decade thanks to the faster speeds. Automated cars and virtual reality are two, big exciting areas. This could mean more revenue for Telstra.
But whilst that sounds good, we don't know how much of the value creation will be headed Telstra's way. A lot of the created value could go to the new tech companies, leaving Telstra with a similar problem in 5G as it has with 4G.
Competition from low cost providers is hurting mobile margins and the NBN has seemingly messed up the profitability of the entire telco sector. Growing subscriber numbers are not enough to offset the NBN pain, which is why FY19's profit fell so much and yet management are warning Telstra is only halfway through the NBN headwinds.
The problem is that unless profit grows then the share price and dividend can't really go anywhere either. I only want to consider dividend shares that have a history of maintaining or growing their dividends.
Foolish takeaway
Telstra is trading at 19x FY21's estimated earnings with a grossed-up dividend yield of 6.3%. To me there's too much uncertainty about Telstra's long-term profit growth to want to invest.
