The Telstra Corporation Ltd (ASX: TLS) share price is at a new 52-week low. Today, Telstra shares have fallen another 0.71% and are trading at $2.78 at the time of writing. That’s a new low for Telstra and quite a remarkable move, considering Telstra shares didn’t even fall below the $3 mark during the share market crash back in March and April. The Telstra share price hasn’t touched levels under $2.80 since December 2018.
Telstra shares are now down 22% year to date, and nearly 30% off of the current 52-week high of $3.94 that was made back in January. That doesn’t look too crash hot against the performance of the broader market.
The S&P/ASX 200 Index (ASX: XJO) is now down 12.9% year to date, meaning Telstra has significantly underperformed the ASX 200 in 2020 so far. That’s pretty astounding, considering Telstra is one of the more stable ASX blue chip shares and has been relatively unaffected by the coronavirus pandemic, at least compared with other ASX blue chips like the big four banks.
So what’s going on with the Telstra share price?
Why Telstra shares are at a new 52-week low
In my opinion, what we are seeing with the Telstra share price is an institutional (read: pension funds and fund managers) rotation of capital out of the company. Put another way, no one wants to own Telstra shares right now, or at least no one with enough money to move the markets. This often happens when an ASX share is on the nose and its outlook isn’t too exciting for at least the next year.
This all comes down to Telstra’s full-year earnings report for FY2020, in my view. In the report, Telstra hit its earnings guidance but also implied that its current dividend of 16 cents per share would come under pressure next year if the company sticks with an earnings payout ratio dividend policy. Currently, Telstra aims to pay out 70–90% of underlying earnings as dividends. Since Telstra is forecasting earnings to come in at below 16 cents per share in FY2021, many investors are assuming that this means a dividend cut is on the cards next year.
Is the market right on this one?
However, I’m not despairing. If Telstra moves to a free cash flow policy rather than using earnings, I think the company could comfortably cover the dividend in FY2021. I think investors are unnecessarily panicking with Telstra right now, and thus, we could be seeing a decent buying opportunity.
Consider this: if Telstra keeps its 16 cents per share payouts next year, the shares at today’s prices are offering a forward dividend yield of 5.76%, or 8.23% grossed-up with Telstra’s full franking. That’s not a guaranteed yield, of course. I could well be wrong on Telstra’s dividend for next year. But I’m not even considering selling my Telstra shares, for whatever that’s worth.