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Why the Telstra share price lost 18% in FY20

Now that the 2020 financial year has officially ended for ASX shares (as of market close), we can take a definitive look at how individual companies have performed over the last 12 months.

Due to the coronavirus pandemic, most ASX shares have recorded heavy losses over the past year, although there have been quite a few exceptions. Telstra Corporation Ltd (ASX: TLS) is not one of those exceptions, much to the chagrin of its shareholders.

Telstra shares started the financial year last July at $3.83. Today, those same shares have ended the trading day at $3.13, which means the Telstra share price has returned -18.28% over the period. Even accounting for Telstra’s hefty dividend payments, shareholders are still underwater. Over the same period, the S&P/ASX 200 Index (ASX: XJO) is down around -11.3%, which means Telstra has lagged the broader market too.

Why have Telstra shares underperformed in FY20?

The Telstra share price has been under pressure for a few years now. Remember, this was a company that was commanding a $6.50 per share price tag 5 years ago.

Telstra has been suffering throughout the rollout of the National Broadband Network (NBN). This has taken away Telstra’s ownership of the old copper ducts and networks which are still lucrative telecommunications infrastructure. Telstra used to be able to charge its competitors for the use of this infrastructure, which was obviously a great position to be in. Now, it has to compete on a level playing field, which, while great for consumers, is bad for Telstra’s bottom line.

Telstra has also been out of favour because it is set to gain a newly beefed-up competitor in the form of the recently merged Vodafone-TPG Telecom Ltd (ASX: TPM). The ACCC initially blocked the TPG merger from going ahead, but an appeal to the Federal Court has resulted in the roadblock being rescinded. Coincidentally, today is the first ASX trading day of the new TPG. Since TPG was a formidable competitor in the fixed-line space and Vodafone in the mobile space, the combined company could cause a headache for Telstra’s market dominance. Although personally, I don’t see it as quite as significant a threat as perhaps some other investors. Even so, the market appears to be betting on TPG shares over Telstra right now.

Is Telstra a bargain buy today?

At its current level, I actually think there is a lot to like about the Telstra share price. Telstra commands the lion’s share of the Aussie telco market. It has a strong brand, an arguably superior mobile network and is also the market leader in investment in the new 5G technology, which is set to supersede the current-generation 4G mobile network over the next year or two.

Telstra also pays a healthy dividend of 16 cents per share on a trailing basis (including the special NBN payments). On current prices, that would give Telstra a trailing yield of 5.09%, or 7.27% grossed-up.

For a strong dividend share with potential 5G upside, I think Telstra shares are well worth considering for FY2021.

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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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