The Telstra Corporation Ltd (ASX: TLS) share price is down around 35% over the past five years as it appears to be a shrinking business, but that's not stopped the analysts at Goldman Sachs slapping a 'buy' rating on the telco.
According to a November 27 note out of Goldman's research desk the analysts reckon Telstra's free cash flow outlook is attractive given the low-interest rate environment.
The analysts even note that Telstra's yield spread versus 10-year benchmark Australian government bonds "has improved".
In other words the dividends it can pay going forward with free cash flow justify today's price of $3.69 and the low-rate environment supports it further.
According to the analysts: "TLS earnings are on-track to return to underlying growth in FY20E, supported by significant cost out and an improving mobile market."
Goldman's is tipping dividends per share to stay flat at 22 cents for FY 2020 through FY 2022. It has earnings per share declining from 23 cents per share to 21 cents per share over FY 2020 through FY 2022. This is largely the result of the negative earnings impact of the NBN.
It's put a $4.30 12-month price target on Telstra shares.
Personally, I'm not with Goldman's on this call. More generally, I don't think buying shares only for 'income' is a sound equity investing strategy.
