Telstra (ASX:TLS) share price hits a multi-year low: Is it a bargain buy?

The Telstra Corporation Ltd (ASX:TLS) share price just hit a multi-year low. Is this a buying opportunity for investors?

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The Telstra Corporation Ltd (ASX: TLS) share price was out of form again on Thursday and dropped lower again.

The telco giant’s shares fell 1.5% to a new multi-year low of $2.75.

This latest decline means that the Telstra share price is now down a disappointing 23% since the start of the year.

Is this a buying opportunity?

I think the weakness in the Telstra share price is a buying opportunity for investors.

Based on its guidance for FY 2021, the company’s shares are changing hands for 19x forward earnings.

I think this is good value, particularly in comparison to TPG Telecom Ltd (ASX: TPG) shares, which are trading at over 40x estimated FY 2021 earnings.

The dividend.

Another reason I would buy Telstra’s shares is its dividend.

Although there have been a lot of questions over the sustainability of its 16 cents per share fully franked dividend, the company’s board recently revealed that it would be willing to adjust its dividend policy to maintain this dividend.

It will do this if it believes $7.5 billion to $8.5 billion of operating earnings is achievable in an NBN world, its free cash flow remains supportive, and its financial position remains strong.

Essentially, the Telstra board doesn’t want to maintain it this year if will only have to cut it the year after.

The good news is that I believe these conditions will be met thanks to its T22 strategy and the easing NBN headwind.

If this proves to be the case, Telstra’s shares will provide investors with a 5.8% fully franked dividend yield in FY 2021. I think this is very attractive in the current environment.

Goldman Sachs’ buy rating.

I’m not the only one that sees the Telstra share price weakness as a buying opportunity.

Earlier this month, analysts at Goldman Sachs retained their buy rating and $3.60 price target on the company’s shares.

This price target implies potential upside of 31% excluding dividends and almost 37% including them.

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Motley Fool contributor James Mickleboro 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.

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