Should you buy Telstra (ASX:TLS) shares for its dividend yield?

Is this telco giant a good option for income investors?

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Over the last five years, the Telstra Corporation Ltd (ASX: TLS) share price has thoroughly underperformed the Australian share market.

During this time, the telco giant’s shares have lost a disappointing 36% of their value.

As a comparison, the S&P/ASX 200 Index (ASX: XJO) has gained 38% during the same period. Both figures exclude dividends.

The tides are changing

However, the good news for shareholders is that 2021 has been very different for the Telstra share price.

In fact, the tides are now changing, and it is the Telstra share price that is outperforming the ASX 200. Since the start of the year, the company’s shares have risen 18%, compared to a gain of 9% by the ASX 200.

Why is the Telstra share price outperforming in 2021?

The catalyst for the Telstra share price rise in 2021 has been its significantly improved outlook and the belief that its dividend cuts are now over. This is due to the early success of its T22 strategy, its leadership position in 5G, asset monetisation plans, and rational competition in the telco industry.

Things are looking so positive that management is now talking about returning to growth again after years of declines.

In February, Telstra’s CEO, Andy Penn commented: “After a decade of disruption following the creation of the nbn, and with its rollout now declared complete, we can clearly see the path to underlying growth ahead of us.”

“Our investment in innovation and technology, digitisation and networks, improving our customer experience and being disciplined in our capital management, mean that at the start of this decade, as Australia digitises its economy, Telstra is in a strong position to grow,” he added.

Should you buy Telstra shares for its dividend yield?

Analysts at Goldman Sachs believe that Telstra would be a good option for income investors.

Earlier this month, the broker retained its buy rating and $4.00 price target on the company’s shares.

The broker also continues to expect fully franked dividends of 16 cents per share through to FY 2023, before a long-awaited increase to 18 cents per share in FY 2024. Based on the current Telstra share price of $3.57, this will mean annual yields of 4.5% until FY 2023 and then 5% thereafter.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Telstra Corporation 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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