The Telstra (ASX:TLS) share price has been rising, so why is the dividend shrinking?

Why are Telstra shares not yielding as much as they used to?

| More on:
Woman has a confused expression as she looks at phone.

Image source: Getty Images

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 had an absolutely stellar year last year. Telstra shares rose from around $2.98 a share at the start of the year to finish up at $4.18 on New Year's Eve. That's a gain of just over 40%. And that's not even including Telstra's dividends either. Factoring those in, together with Telstra's full franking credits, and we can add several more percentage points to those gains.

No doubt investors (particularly those who have held Telstra shares for decades) wouldn't be used to those kinds of returns from an old blue-chip like Telstra.

And not only that, but Telstra has started 2022 off on perhaps the best foot possible. Since New Year's Eve, this company has added another 0.5% or so to its share price, blitzing past a couple of new 52-week highs in the process. Just today, we have seen Telstra hit a new high of $4.23 a share. Telstra hasn't consistently traded at these kinds of levels since 2017.

Why has Telstra's dividend yield been falling?

But this rapid share price appreciation does come with a downside. Telstra used to be one of the highest yielding dividend shares in the ASX 20. This time last year, its fully franked 16 cents per share annual dividend was giving investors a yield of 5.26%, or a whopping 7.51% grossed-up with the full franking credits, based on its then share price of $3.04.

Telstra is still paying out 16 cents per share (well, it did so in 2021). And yet, Telstra shares at today's pricing 'only' offer a yield of 3.81%.

Existing investors have nothing to worry about. If you picked up Telstra shares last year for $3.04 each, then you are still getting a 5.26% yield on your capital. But newer investors aren't as lucky.

That's the downside with dividend shares. If dividend payouts remain constant, higher share prices pull down the yield new investors can expect from the shares.

But even so, a 3.81% yield on Telstra shares is arguably nothing to sneeze at, especially with interest rates still at record lows.

Motley Fool contributor Sebastian Bowen owns Telstra Corporation Limited. 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 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 Dividend Investing

A mature-aged couple high-five each other as they celebrate a financial win and early retirement
Dividend Investing

5 top ASX dividend shares to buy right now

Analysts think income investors should be loading up on these shares.

Read more »

Two adults and a child look happy as they walk through airport with child sitting on suitcase.
Dividend Investing

Will Qantas shares pay a dividend in 2024?

Will the dividends return this year? Let's find out.

Read more »

A woman sits at her computer with her chin resting on her hand as she contemplates her next potential investment.
Dividend Investing

2 market-leading ASX dividend stocks to buy in April

Analysts have put buy ratings on these market-leaders.

Read more »

Father in the ocean with his daughters, symbolising passive income.
Dividend Investing

I'd spend $8k on these ASX 200 shares today to target a $6,102 annual passive income

I believe these ASX 200 shares will continue rewarding passive income investors for years to come.

Read more »

Man holding Australian dollar notes, symbolising dividends.
ETFs

Want the latest dividend from the Vanguard Australia Shares ETF (VAS)? Here's what you have to do

If you want to bag the latest VAS dividend, here's what you need to do.

Read more »

A smiling businessman in the city looks at his phone and punches the air in celebration of good news.
Dividend Investing

Investing for passive income? Keep any eye out for that boosted Telstra dividend today!

If you own Telstra shares, keep an eye out for that juicy dividend payout today.

Read more »

A happy construction worker or miner holds a fistfull of Australian money, indicating a dividends windfall
Dividend Investing

Invest $12,000 in Woodside stock and get $5,700 in passive income

Reliable dividend shares are everywhere on the ASX. Here's how you could use that to your advantage.

Read more »

Australian dollar notes in businessman pocket suit, symbolising ex dividend day.
Dividend Investing

3 ASX 300 dividend shares to buy in April

These shares have been named as buys by brokers and tipped to offer very attractive yields.

Read more »