Telstra Corporation Ltd (ASX: TLS) shares have always been famous for their dividends – one way or another.
If you wind the clock back a few years, it was all about that yield. Telstra shares used to be known for consistently paying a grossed-up double-digit dividend, which seemed too good to be true. For a long time, it wasn't.
And suddenly, it was.
In 2017, Telstra became the pariah of dividend investors everywhere when it halved its cherished payout. Telstra shares were going for over $6 back in 2015, but by mid-2018 Telstra shares were at an all-time low of $2.62 – a double-whammy for investors who now had to deal with an enormous capital loss on top of a stunted dividend.
The NBN wrecking ball had cleaved a crater in Telstra's balance sheet. Suddenly, the lucrative (and monopolistic) copper network that Telstra had been able to leverage for decades was gone, replaced by a level playing field in the Australian telco space for the first time.
What does Telstra's dividend look like today?
The Telstra of today is a vastly different beast than the Telstra of old. However, the company's dividend remains a focal point for investors. This year, Telstra has paid out a dividend of 16 cents per share. On today's share price, this equates to a yield of around 4.55% (or 6.5% including full franking) – not a bad bag in today's low interest-rate world.
But here's why I like this yield. Telstra earns most of its money from selling smartphones, mobile plans, data and internet services. These products are pretty much essential for modern living – it would take a lot more people to give up their data and phones today.
If we do get hit by a recession or slowdown in the next few years, I would expect most big dividend payers like Commonwealth Bank of Australia (ASX: CBA) and BHP Group Ltd (ASX: BHP) would have to trim their shareholder payouts. Most businesses are cyclical – meaning than earnings are vulnerable to a slowdown in economic activity.
I think Telstra is more or less immune from this cyclicality for the reasons outlines above. Therefore, it's a stock I would feel comfortable owning in all economic weather. For me, it certainly does make Telstra's dividend look much better on closer inspection!
