3 reasons why the Telstra (ASX:TLS) share price could be a buy

Telstra shares could be an interesting proposition after recent developments.

| More on:
person on old-fashion telephone, surprised person

Image source: Getty Images

The Telstra Corporation Ltd (ASX: TLS) share price could be one to think about as the telecommunications business reveals a number of new compelling reasons to consider the stock.

Telstra has been working on its T22 strategy for a few years. That involved cutting costs and becoming more efficient.

But it has recently revealed a T25 strategy that may be even more compelling for a few different reasons:

Return to profit growth

Telstra management outlined that the company is now expecting profit growth to return after a number of declines due to the switch to the NBN and a lot of competition in the mobile space from low-cost players.

The telco said it’s aiming for sustained growth and value by targeting a compound annual growth rate (CAGR) of mid-single digit underlying earnings before interest, tax, depreciation and amortisation (EBITDA) and high-teen underlying earnings per share (EPS) between FY21 to FY25.

The T25 strategy is also looking to deliver another $500 million of net cost reductions, good cash conversion and generation, active portfolio management and shareholder value through an updated capital management framework. That $500 million is on top of the $2.7 billion it has already committed for T22, while at the same time investing for growth.

One of the key ways that investors may judge the Telstra share price is the profit it’s making and the growth expectations of that profit in the coming years.

Dividend growth

Under Telstra’s updated capital management framework, it has included the principle to maximise fully franked dividends and looks to grow them over time, to invest for growth and return excess cash to shareholders.

However, Telstra noted that it needs to grow its underlying earnings as well as its franking balance in order to grow its dividend.

The board are confident in maintaining a minimum annual payment of $0.16 per share. At the current Telstra share price, that translates to a grossed-up dividend yield of 5.8%.

Earnings diversification

Telstra is looking to diversify its earnings by expanding into different sectors.

It’s looking to launch energy services to go alongside its telecommunications offering. Telstra wants to establish a fully integrated channel experience so customers wanting a telco product or service, energy, tech equipment or integrated home solution, can use Telstra for it.

Another area that Telstra sees a big future is healthcare. One of the most recent moves in this area was an acquisition called MedicalDirector which it bought for $350 million. It provides software as a service (SaaS) across electronic health records, patient and practice management, billing, scheduling, care coordination, medicines information and clinical content. It currently supports around 23,000 medical practitioners and is used to deliver more than 80 million consultations a year.

Telstra wants to be a leading partner to the health and aged care sectors.

Should you invest $1,000 in Telstra right now?

Before you consider Telstra, you'll want to hear this.

Motley Fool Investing expert Scott Phillips just revealed what he believes are the 5 best stocks for investors to buy right now... and Telstra wasn't one of them.

The online investing service he’s run for over a decade, Motley Fool Share Advisor, has provided thousands of paying members with stock picks that have doubled, tripled or even more.* And right now, Scott thinks there are 5 stocks that are better buys.

*Returns as of January 13th 2022

Motley Fool contributor Tristan Harrison 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.

More on Communication Shares

Two male Telstra executives wearing dark coloured suits sit at a table holding their mobile phones discussing the Telstra share price
Broker Notes

Telstra (ASX:TLS) ‘best placed in the Aussie mobile market’ says JP Morgan

The Telstra Corporation Ltd (ASX: TLS) share price closed the session 3% down on Tuesday, and is set to open …

Read more »

A man wearing glasses sits back in his desk chair with his hands behind his head staring smiling at his computer screens as the ASX share prices keep rising
Share Gainers

Why is the Uniti (ASX:UWL) share price up 10% on Monday?

Key points The Uniti share price is trading 10% higher today following its latest update Multiple approaches have been made …

Read more »

A smiling woman with a satisfied look on her face lies on a rug in her home with her laptop open and a large cup on the floor nearby, gazing at the screen. researching new ETFs
Communication Shares

Will Telstra (ASX:TLS) shares ever hit their $9 record high again?

Key points Telstra shares have had an impressive run over the past 12 months or so But even so, the …

Read more »

surprised asx investor appearing incredulous at hearing asx share price
Communication Shares

Why the Telstra (ASX:TLS) share price zoomed 43% higher in 2021

The last few years haven’t been easy for the Telstra Corporation Ltd (ASX: TLS) share price and its shareholders. But …

Read more »

A male ASX investor sits cross-legged with a laptop computer in his lap with a slightly crazed, happy, excited look on his face while next to him a graphic of a rocket shoots upwards with graphics of stars scattered around it
52-Week Highs

The Telstra (ASX:TLS) share price has already hit multiple 52-week highs this year. What’s happening?

Key points The Telstra share price has hit 3 52-week highs so far this year The stock is currently trading …

Read more »

A woman smiles widely while using an old fashioned hand set telephone with dial.
Communication Shares

Own Telstra (ASX:TLS) shares? Here’s what you need to know about next month’s earnings report

If you’re a shareholder of Telstra Corporation Ltd (ASX: TLS), well, firstly, congratulations. Telstra shares have been one of the …

Read more »

Young woman using computer laptop smiling in love showing heart symbol and shape with hands.
Communication Shares

This top broker just rated the TPG (ASX:TPG) share price as a buy

The TPG Telecom Ltd (ASX: TPG) share price has just been rated as a buy by one of the leading …

Read more »

man handing over wad of cash representing ASX retail capital return
Dividend Investing

Is the Telstra (ASX:TLS) dividend going to grow in 2022?

Telstra Corporation Ltd (ASX: TLS) is known as an ASX dividend share. But, after a few years of stagnant payouts, …

Read more »