An interesting development has been occurring with Telstra Group Ltd (ASX: TLS) shares of late. If you can guess from the headline, it involves this ASX 200 telco and blue-chip share's dividend yield.
Telstra shares have always been famous for their dividends. The telco first listed on the ASX in the late 1990s after being privatised, and has been funding generous dividend payments for its investors ever since.
However, the dividend yield in Telstra shares has exploded over the past three months. Back on 20 June, the telco offered up a dividend yield of 3.85%. Telstra's dividends always come fully franked, so that yield grosses up to a healthy 5.5%, including the value of those franking credits.
Today, however, those same Telstra shares come with a dividend yield of 4.43%, or 6.33% grossed up.
So how has Telstra's yield increased by 15% in just three months?
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What's up with Telstra shares' dividend yield?
Well, to get this out of the way, it's got nothing to do with the company's raw dividends themselves. Both of those yields are built upon Telstra's dividend payments of 17 cents per share that the telco has paid out over the past 12 months.
That's made up of the 8.5 cents per share interim dividend that was paid out back in March, as well as the final dividend of 8.5 cents per share that investors are set to receive later this month on 28 September.
But a company's dividend yield doesn't just depend on the raw dividend payments a company pays out. It's also a function of a company's share price too.
Say a company trades for $10 a share and pays out an annual dividend of $1 per share. If you bought those shares for $10, then you would get a dividend yield of 10% on your investment. But if that company rises to $20 a share and doesn't change its raw dividend payouts. Then, buying those shares at $20 would give our investor a dividend yield of 5%.
This works in reverse too, and this is why Telstra's dividend yield has seemingly exploded over the past three months. That's because today, the telco is trading at $3.84 a share (at the time of writing). But back on 20 June, the company was asking $4.43 a share.
So investors have swapped a $4.43 share price and a 3.84% dividend yield for a $3.84 share price with a 4.43% dividend yield.
Share prices and dividends can cut both ways, as Telstra's experience over the past three months clearly shows.
