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The Telstra (ASX:TLS) dividend yield is creeping higher

asx share price inching higher represented by hand making gesture of small amount
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The Telstra Corporation Ltd (ASX: TLS) share price is having a good start to the day today. Telstra shares are up 0.33% to $3.04 at the time of writing. However, the picture is not so rosy if you zoom out a little.

The Telstra share price rose nearly 18% in value over the first half of November, but has been going backwards ever since. After topping out at $3.16 on 18 November, Telstra has spent the past ~2 weeks sliding back to the share price we see today.

Now that slide is only worth around 4%. But it’s still something to note. Remember, Telstra shares were in hot demand after the company announced an ambitious plan to separate its core businesses into 3 different ‘legal entities’ early last month. That was likely the main catalyst behind the 18% or so rise we saw in the first half of the month. But investors seem to have run out of enthusiasm of late.

Even so, a lower Telstra share price might be welcomed today by one group of investors in particular – those chasing dividend income.

Lower prices = higher yields

See, a lower share price directly translates into a higher starting dividend yield for any new investors. That’s because Telstra’s annual dividend that investors can expect is a flat 16 cents per share, which the company paid out in 2020 and has indicated it will do so again in 2021.

16 cents a share at a share price of $3.04 gives you a higher dividend yield than 16 cents per share at a share price of $3.16. This effect is exaggerated further by the Telstra dividend’s inclusion of full franking credits.

So what is Telstra’s dividend yield looking like today?

Well, two weeks ago, a $3.16 share price would have translated into a trailing 12-month dividend yield of 5.06%, or 7.23% grossed-up with full franking.

But today, at a share price of $3.04, that same dividend is instead worth a trailing yield of 5.26%, or 7.51% grossed-up. That’s a significant difference for a two week period when you think about it.

Will Telstra be raising this dividend any time soon?

Judging by the company’s recent commentary, it seems Telstra is more concerned with keeping the dividend at the current level, rather than raising it. At the company’s annual general meeting back in October, Telstra chair, John Mullen, said the following:

The board is acutely aware of the importance of the dividend to shareholders, and we understand the nervousness from some that COVID and other pressures may force Telstra to again cut its dividend… The board clearly understands the importance of the dividend and if necessary is prepared to temporarily exceed our capital management framework principle of paying an ordinary dividend of 70- 90% of underlying earnings to maintain a 16c dividend.

It doesn’t seem like Telstra will be cutting its dividend anytime soon, but I also wouldn’t bank on a 2021 raise, if these words are anything to go by.

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Returns As of 6th October 2020

Motley Fool contributor Sebastian Bowen owns shares of Telstra Limited. The Motley Fool Australia owns shares of and has recommended Telstra Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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