Can ASX telco shares provide stable dividend income going forward?

Telecommunication companies have finally realised that they operate in a highly commoditised environment. Can ASX telco shares provide stable dividend income in 2020?

| More on:
a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

In 2020, most ASX telcos finally gave up on their dreams of international expansion and world domination. Long gone are the days when Telstra Corporation Ltd (ASX: TLS), and its competitors, could define themselves as fast-growing tech companies.

The telecommunications sector has instead realised that it is a utility-like business, selling highly commoditised products with low margins and profits.

This is not all bad news though. In such an environment, incumbents usually have a competitive advantage as they already have costly infrastructure put in place. Thin margins coupled with heavy capital expenditure will prevent more competitors from joining the fray. This will lead to consolidation within the industry, which is already happening with recent mergers.

Fortunately, consolidation and savvy cost cutting initiatives should allow these ASX telcos to pay stable – albeit not growing – dividends for years to come.


As the largest telecommunication company in Australia, Telstra does not require an introduction. At current prices, it provides a nice fully franked dividend grossed up to around 4%.

For the next 2 years, Telstra is forecasted to maintain its dividend steady at about 16 cents per share, which implies a dividend well covered by earnings with a payout ratio of around 75%.

Although the dividend appears stable, with a current price-to-earnings (P/E) ratio of 19, I think Telstra's shares are fairly overvalued at present.

Spark New Zealand Limited (ASX: SPK)

Spark operates in New Zealand and is listed on the NZ exchange as well as on the ASX. With a market cap of $7.5 billion, it is the second largest telco within Australasia. Spark rebranded in 2014, when it changed name from the previous Telecom New Zealand.

As with the rest of the sector, Spark seems fully valued at present with a P/E of around 19. Further, revenue and earnings are both set to remain stable or drop slightly going forward, which I think is bad news for its dividend.

With a dividend yield of 4.88%, Spark appears to be the largest dividend payer within the industry. However, with a payout ratio close to 94%, I believe the dividend could be under threat and would not be surprised if it were trimmed.

TPG Telecom Limited (ASX: TPM)

Since the merger with Vodafone Hutchison was announced in 2018, the TPG share price has been quite volatile. At present, TPG sports a P/E of 35, which is roughly double the P/E of the broader market.

With an extremely low payout ratio of 21%, the dividend has ample runway to increase in the coming years. However, between the stretched valuation and the very low dividend starting base of 0.6%, TPG might not be the best choice for income-oriented investors.

Motley Fool contributor Giacomo Graziano 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.

More on Technology Shares

A young well-dressed couple at a luxury resort celebrate successful life choices.
Technology Shares

Why the 'opportunity is immense' for DroneShield shares: fundie

DroneShield’s 480% one-year share price gains may be just the beginning, according to this top fundie.

Read more »

A man in trendy clothing sits on a bench in a shopping mall looking at his phone with interest and a surprised look on his face.
Technology Shares

3 explosive ASX tech stocks to buy and hold forever

Analysts think very highly of these rapidly growing companies.

Read more »

A group of businesspeople clapping.
Technology Shares

Why Xero could be one the best shares to buy in the Asia-Pacific

Goldman Sachs thinks very highly of this tech stock.

Read more »

a man wearing old fashioned aviator cap and goggles emerges from the top of a cannon pointed towards the sky. He is holding a phone and taking a selfie.
Technology Shares

Up 80% in a year, this ASX All Ords stock is a 'long way short' of its true value

This fund manager is bullish.

Read more »

A smiling woman with a handful of $100 notes, indicating strong dividend payments
Technology Shares

If I'd put $5,000 into DroneShield shares just 1 year ago, here's what I'd have now

How good an investment has this tech company been?

Read more »

Vanadium Resources share price person riding rocket indicating share price increase
Technology Shares

Guess which ASX tech stock could double in value

This highly speculative stock could offer big returns according to one broker.

Read more »

A silhouette shot of a man holding a control in his hands and watching as a drone hovers overhead with sunrays coming from the sky.
Technology Shares

Unstoppable: How much higher can the DroneShield share price fly?

Another day flying high for this counter-drone player.

Read more »

A man sits in deep thought with a pen held to his lips as he ponders his computer screen with a laptop open next to him on his desk in a home office environment.
Share Fallers

Why did this ASX AI stock just crash 21%?

Investors just sent this ASX AI stock tumbling by more than 21%. But why?

Read more »