The Telstra (ASX:TLS) share price sank 15% lower in 2020: Time to buy?

The Telstra Corporation Ltd (ASX:TLS) share price was out of form in 2020. Is this a buying opportunity in 2021?

| More on:

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

The Telstra Corporation Ltd (ASX: TLS) share price was a disappointing performer again in 2020.

The telco giant's shares lost 15.1% of their value over the 12 months. This compares to a 1.4% decline by the benchmark S&P/ASX 200 Index (ASX: XJO).

Why did the Telstra share price underperform?

Investors were selling Telstra's shares last year amid concerns over the impact that the pandemic was having on its operations and ultimately its dividend.

In FY 2020, the company estimated that its underlying result included a net negative impact from COVID-19 of approximately $200 million. This relates to lower international roaming, financial support for customers, delays in NAS professional services contracts, and additional bad debt provisions.

And while this didn't stop Telstra from maintaining its 16 cents per share fully franked dividend in FY 2020, there are nagging fears that this might not be the case in FY 2021.

In light of this, the Telstra share price has fallen accordingly to reflect a potential dividend cut.

Is a dividend cut coming?

Judging by its share price performance, many in the market appear to believe a dividend cut is coming this year.

However, it is worth noting that most analysts are forecasting a 16 cents per share fully franked dividend for the foreseeable future.

This follows comments by the company in respect to its willingness to adjust its dividend policy appropriately to maintain this dividend, just as long as it isn't for a temporary fix.

What else happened in 2020?

In November Telstra announced an important milestone in its T22 strategy with the proposed restructuring of the company to create three separate legal entities.

Telstra's CEO, Andrew Penn, believes the restructure would enable the company to take advantage of potential monetisation opportunities for its infrastructure assets which could create additional value for shareholders.

Mr Penn commented: "The proposed restructure is one of the most significant in Telstra's history and the largest corporate change since privatisation. It will unlock value in the company, improve the returns from the company's assets and create further optionality for the future."

Is the Telstra share price weakness a buying opportunity?

This proposal went down well with analysts at Goldman Sachs. It reiterated its buy rating and $3.75 price target on its shares following the news.

The broker also reaffirmed its forecast for a 16 cents per share fully franked dividend in FY 2021 and beyond.

Goldman commented: "We believe the update from Telstra will be viewed positively, given: (1) it reflects a greater willingness to monetize its attractive infrastructure assets to create shareholder value; and (2) underlying earnings trends, particularly in mobile, which looks to be trending favorably, supporting the improved FY23 ROIC target."

"This supports our positive view on Telstra, which continues to be predicated on: (1) A positive mobile inflection approaching, which typically drives outperformance; (2) The 16cps dividend is a sustainable, and could be supplemented by meaningful TowerCo proceeds; and (3) Significant Infrastructure value, which could be crystallized over time as we head towards NBN privatization," it concluded.

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. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on Share Market News

A male ASX 200 broker wearing a blue shirt and black tie holds one hand to his chin with the other arm crossed across his body as he watches stock prices on a digital screen while deep in thought
Share Market News

5 things to watch on the ASX 200 on Tuesday

It looks set to be a tough session for Aussie investors today.

Read more »

Australian dollar notes in the pocket of a man's jeans, symbolising dividends.
Broker Notes

2 ASX 200 shares Macquarie thinks will return nearly 30%

These two companies could be worth a closer look.

Read more »

Smiling man sits in front of a graph on computer while using his mobile phone.
Broker Notes

Ord Minnett says these ASX 300 shares are buys

The broker is feeling bullish about these shares right now.

Read more »

Two happy and excited friends in euphoria holding a smartphone, after winning in a bet.
Broker Notes

3 ASX shares upgraded by Morgans to buy ratings

Let's see why the broker has turned positive on these shares.

Read more »

Fancy font saying top ten surrounded by gold leaf set against a dark background of glittering stars.
Share Gainers

Here are the top 10 ASX 200 shares today

It was a disappointing start to the trading week.

Read more »

Successful group of people applauding in a business meeting and looking very happy.
Broker Notes

Leading brokers name 3 ASX shares to buy today

Here's why brokers believe that now could be the time to buy these shares.

Read more »

Wooden blocks spelling rebound with coins on top.
Broker Notes

Can Life360 shares recover from the AI fuelled sell-off?

A leading expert looks into the AI-driven pressure hitting Life360 shares.

Read more »

An engineer takes a break on a staircase and looks out over a huge open pit coal mine as the sun rises in the background.
Broker Notes

Up 49% in a year, should you buy BHP shares for their 'stability and income'?

A leading expert delivers his forecast for BHP’s fast-rising shares.

Read more »