The Telstra Group Ltd (ASX: TLS) share price has seen plenty of volatility in 2022. But, for the year, it's now only down by less than 6%. Can it finish the year with a good performance?
So far in the month, it hasn't done much. On the first day of December, the share price finished unchanged at $3.98.
The company is in an interesting time at the moment. The world is going through elevated inflation and higher interest rates, which has hurt valuations in a number of sectors on the ASX share market.
But Telstra is in a defensive industry – I think people and businesses are very likely to keep paying for telecommunications.
Let's have a look at what might influence the Telstra share price in December and beyond.
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Santa rally for December?
While the Telstra share price's performance is largely down to its operations in the longer term, what's happening elsewhere can influence things in the short term.
The S&P/ASX 200 Index (ASX: XJO) and other share markets have seen a strong run in the last few months. Since the end of September 2022, the ASX 200 has risen by around 13%.
There is a lot of talk that inflation may have peaked, or is about to. This is leading to central banks deciding to increase the interest rate by a smaller percentage. The Reserve Bank of Australia (RBA) has already started doing 0.25% increases and the US Federal Reserve may decide to do smaller increases from December onwards.
The reasoning for the slower rises is that it can take time for the effects of previous increases to flow through. It could be prudent to see the effects of the increases.
Investors may think that if the interest rate rises are slower, then the peak could be closer, and perhaps interest-rate reductions are nearer. This could be a positive for the ASX share market and the Telstra share price in December.
However, that line of thinking certainly comes with a lot of assumptions. The US Federal Reserve boss Jerome Powell has also commented that the interest rate is likely to stay high for some time to control inflation.
Thoughts on the Telstra share price
Despite the improving situation for the telecommunications giant, Telstra has not seen a bump in its share price. It is virtually the same level where it was 12 months ago – perhaps that's a positive considering the higher interest rate.
I think the outlook is much more positive for the company. Its core mobile earnings can grow as it's increasing prices in line with inflation. Telstra's sources of revenue are diversifying as it expands with Telstra Health and the recent acquisition of Digicel Pacific – a telco provider for Pacific island countries such as Fiji.
However, it's interesting to note that Telstra has delayed the launch of its retail energy business until at least the middle of 2023, according to the Australian Financial Review.
An expectation of continued cost cuts could help underlying earnings per share (EPS) grow by more than 10% per annum in the next few years.
A bonus is that it's starting to grow its dividend. If it pays an annual dividend of 17 cents per share in FY23, as Commsec estimates suggest, then that would be a grossed-up dividend yield of 6.1%.
