The Telstra Corporation Ltd (ASX: TLS) share price had a very nasty day on the ASX today – falling 6.12% to $3.07 a share. It’s the lowest share price Telstra has touched since the start of 2019 and gives Australia’s largest telco a market capitalisation of $36.51 billion and a price-to-earnings ratio of 17.7
But I think this share price presents a compelling buying opportunity for Telstra – one that could be especially rewarding for ASX dividend investors next week.
Why Telstra shares are at 52-week lows
Telstra (like most AX shares) has been caught up in the market panic that has gripped the ASX since the coronavirus pandemic became a global issue. The S&P/ASX 200 Index (ASX: XJO) is down over 30% since mid-February, so it was almost inevitable that Telstra shares would be caught up in the selling.
As reported in the Australian Financial Review, Telstra is also suspending a planned workforce cull as part of its T22 cost-cutting masterplan as well as hiring an additional 1,000 temporary contract workers. Whilst this is no doubt ‘the right thing to do’ in the current climate, it’s also inevitably bad for Telstra’s balance sheet at the same time, which is likely why we saw such a heavy sell-off of Telstra shares today.
Why are Telstra shares a buy right now?
At the current share price, Telstra shares are offering a trailing dividend yield of 5.2% (or 7.43% grossed-up with full franking). Telstra has repeatedly reaffirmed the sustainability of this dividend over the last year and I don’t see the current coronavirus situation substantially damaging this affirmation.
Demand for Telstra’s core products of mobile services and fixed-line internet is highly inelastic and is unlikely to experience a drop-off. In fact, customers may even be tempted to increase their data allowances if they are forced to self-quarantine in the coming weeks and months.
Telstra is also investing heavily in the new generation of mobile technology known as 5G.
5G offers a potentially lucrative new revenue stream for the company if it gets off the ground as Telstra has taken the market lead in investing in new 5G infrastructure.
So this is a defensive company with a potential 5G upside offering a grossed-up yield of 7.43% – hardly a bad deal in this new era of zero interest rates. For these reasons, I think you could do far worse than initiating or adding to a Telstra position in a dividend portfolio next week.
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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.