It has been another disappointing day of trade for the Telstra Corporation Ltd (ASX: TLS) share price on Thursday.
The telco giant's shares have continued their decline and dropped 1.5% to a 52-week of $2.81.
This means the Telstra share price is now down almost 29% from its 52-week high.
Why is the Telstra share price at a 52-week low?
Investors have been selling Telstra's shares since the release of its full year results in August.
While Telstra's result was largely in line with expectations, its FY 2021 guidance was weaker than expected due to coronavirus impacts.
This spooked investors because, as it stands, Telstra's guidance for the year ahead implies that a dividend cut will be necessary.
Some analysts have suggested 12 cents per share will be the dividend it pays in FY 2021, which has led to its shares falling accordingly.
Is this a buying opportunity?
I believe this is a fantastic buying opportunity and remain optimistic that a dividend cut will be avoid.
This could be achieved if Telstra changes its dividend policy from an earnings-based one to a free cash flow-based policy.
Last week, James Gerrish from Shaw and Partners explained on LiveWire Markets why he believes the company's dividend can be sustained.
Mr Gerrish explained: "On an earnings basis, the 16c dividend is not sustainable given TLS will likely generate around 14c EPS in FY21 & FY22 before rising from there, however TLS have shifted their dividend focus to be more heavily aligned with free-cashflow (FCF). In terms of that number, which seems to now be the key for the dividend, it's expected to be around 23c in FY21 & FY22 and rising from there."
Clearly, with 23 cents per share of free cash flow expected in FY 2021, it would be more than enough to fund a 16 cents per share dividend.
Mr Gerrish added: "Given the rhetoric around free-cash-flow that we saw at the recent result, it seems likely that the market is too bearish on the sustainability of the TLS dividend given its being anchored to EPS, not FCF."
I completely agree with this view and would be a buyer of Telstra's shares ahead of rival TPG Telecom Ltd (ASX: TPG).