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Why the Telstra share price rose 11% in November

The Telstra Corporation Ltd (ASX: TLS) share price has had a surprising pop in the month of November and could be heading higher as we enter December. Telstra shares started last month out at $3.49, but steadily rose over the last month and have opened this morning at $3.86. Telstra is trading higher still at the time of writing -swapping hands for $3.88.

That means TLS shares have booked a November gain of approximately 11.1% – not bad for a month’s work. Given the Telstra share price has languished in recent months (going as low as $3.40 in October), shareholders would no doubt be cheering this latest move on.

Why have Telstra shares been popping?

The catalyst for most of November’s gains appears to have been some earnings guidance that Telstra gave to the market on its investor day last week. The company reaffirmed its expected earnings for FY20, in which it expects to grow by $500 million. This expected growth is possible due to Telstra’s T22 $2.5 billion cost-cutting program being on track, with $1.17 billion in savings already banked.

This is good news for investors, as it implies Telstra’s 16 cents per share dividend looks to be well-covered going into next year.

On current prices, this dividend offers a trailing yield of 4.12% (or 5.89% grossed-up), which is a pretty hefty yield considering our current low interest rate environment.

Where are Telstra shares heading from here?

It’s hard to say, but in my personal opinion, I see additional upside for TLS shares from here. Telstra’s dividend is a valuable one as I think the company’s earnings are relatively inelastic when you compare it with other ASX stocks. Even if there is a recession or some other kind of economic shock, I can’t see Telstra’s customers parting with their mobile phones or internet services in a hurry.

Thus, I think income investors will continue to flock to Telstra once it becomes clear that its dividend is sustainable and well-covered by the company’s earnings and free cash flow going forward.

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Motley Fool contributor Sebastian Bowen owns shares of Telstra Limited. The Motley Fool Australia owns shares of and has recommended Telstra Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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