Why the Telstra share price is a good buy for dividends

The Telstra Corporation Ltd (ASX: TLS) share price has had its ups and downs in 2020 but is it still a strong buy for income?

| More on:
hand holding mobile phone against back drop of line chart representing Telstra share price split restructure

Image source: Getty Images

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

It's been a wild ride for the Telstra Corporation Ltd (ASX: TLS) share price in recent years.

While the company's value has fluctuated, one thing that hasn't changed is Telstra as a top ASX dividend share.

Times are tough right now and the August earnings season brought some interesting results. Amongst the chaos and the coronavirus pandemic weighing on profits, Telstra maintained its dividend.

However, investors weren't impressed, with the Telstra share price falling 15% in the last month.

So, is it the Aussie telco a good buy for income or should you look elsewhere for yield in 2020?

Why the Telstra share price could be a good buy

It's important to note that it wasn't all good news from Telstra's August earnings result.

Telstra reported a 9.7% decline in underlying earnings before interest, tax, depreciation and amortisation (EBITDA) to $7.4 billion. That saw the company's net profit fall 14.4% to $1.8 billion in a tough year for shareholders.

The $3.4 billion free cash flow figure was at the low end of guidance, which allowed Telstra to maintain its full-year dividend at 16 cents per share.

The NBN headwind is expected to continue in FY21 resulting in a forecast $700 million hit to underlying EBITDA. Income investors will be focused on whether or not Telstra can continue its impressing dividend-paying streak.

I think there are some big challenges but also exciting prospects for the future. That includes the fact that Telstra is shaping up as a real leader in the 5G network space.

Capitalising on 5G technologies could be the key to stabilising earnings and growing earnings into the future. Any further changes in work from home arrangements could also boost demand for network capabilities in regional areas and unlock future growth.

The Telstra share price climbed 1.4% higher yesterday and closed the day at $2.88 per share. That means the Aussie telco has a 3.5% dividend yield right now which is quite good in the current climate.

Foolish takeaway

I think income-seeking investors could do much worse than Telstra as a large-cap ASX share with solid earnings potential.

Motley Fool contributor Ken Hall has no position in any of the stocks mentioned. 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 man sits thoughtfully on the couch with a laptop on his lap.
Technology Shares

This ASX tech stock rocketed 60% in March! Can it keep on delivering?

After soaring in March, the ASX tech stock is now up 169% since this time last year.

Read more »

Five happy friends on their phones.
Share Market News

Goldman Sachs says these ASX tech stocks can rise 18% to 30%

The broker sees big returns on offer from these shares.

Read more »

A guy helps a girl lift a couch, both are laughing.
Technology Shares

3 of the best ASX tech shares to buy and hold until 2030

I think these stocks have exciting futures.

Read more »

A young woman uses a laptop and calculator while working from home.
Technology Shares

If I'd put $5,000 in Block shares 5 months ago, here's what I'd have now

Was it a good idea to invest in this payments stock five months ago?

Read more »

Close up of a sad young woman reading about declining share price on her phone.
Technology Shares

Why is the Brainchip share price sinking over 7% today?

What's going on with this tech stock on Wednesday?

Read more »

woman working on tablet
Technology Shares

Missed out on Nvidia? My best ASX tech stock to buy and hold

Do you have FOMO after the US chip maker's share price rocketed? Here's an Aussie company worth backing instead.

Read more »

Three businesspeople leap high with the CBD in the background.
Technology Shares

Guess which ASX small-cap stock is rocketing 45% on 'pivotal moment'

Investors have responded very positively to an announcement.

Read more »

A man looking at his laptop and thinking.
Technology Shares

Why are these ASX tech shares getting smashed today?

Owners of these two stocks are missing out today.

Read more »