Over 2024 so far, most ASX 200 shares have enjoyed some healthy gains. That's notwithstanding the bloodbath that this week so far has turned out to be. But Telstra Group Ltd (ASX: TLS) stock has missed out on the party.
This year has seen blue chip shares ranging from Commonwealth Bank of Australia (ASX: CBA) to Wesfarmers Ltd (ASX: WES) record some handsome gains. That's not really much of a surprise, considering how many new record highs the S&P/ASX 200 Index (ASX: XJO) has minted over 2024 to date.
This telco has missed out on an ASX 200 party
However, the same cannot be said of the Telstra share price. Telstra stock has retreated by a significant 7.3% between the beginning of January and yesterday's market close. In fact, yesterday saw the company hit a new 52-week low of just $3.67 a share.
It gets worse for Telstra shares if we zoom out a little too. Since its last 52-week high of $4.46 a share that we saw last June, this ASX 200 telco and blue chip stock has lost around 17% of its value.
But while this share price loss has been painful for existing Telstra investors, it has done wonders for the telco's dividend yield.
A company's dividend yield is the function of two metrics. The first is of course the raw dividends per share that a company pays out on an annual basis. But the second is the company's stock price.
To illustrate, if a company cuts its dividends per share by 50%, its dividend yield will also fall by 50%. But if that same company keeps its dividends per share at a consistent level, but its stock price doubles, its dividend yield will also fall by 50%.
As such, it's easy to understand how as Telstra's stock price has fallen, its trailing dividend yield has been rising. So much so that the telco closed on a dividend yield of 4.76% yesterday.
Given Telstra's payouts typically come with full franking credits attached, this yield grosses up to an even more impressive 6.8%.
But does this dividend yield make Telstra shares a smart buy? After all, many dividend shares seemingly trade on attractive yields, but end up being dividend traps when the company cuts its dividend payouts down the road.
Is Telstra stock a buy for dividend investors today?
Well, I would argue that Telstra is a smart buy for dividends right now. Despite the share price woes of the last few months, this is a company whose finances remain in rude health.
Its last earnings report in February saw the company post a 3.1% rise in underlying earnings to $4 billion, as well as an 11.5% increase in net profits after tax to $1 billion.
Telstra remains the market-leading provider of both mobile connections and fixed-line internet services in Australia. By quite a wide margin too.
Finally, Telstra's track record of dividend payments bodes well for future income security. Telstra hasn't cut its dividend since the mid-2010s when the NBN rollout necessitated significant structural changes to its business model.
In fact, investors have enjoyed annual dividend hikes every year since 2022, including 2024's interim dividend of 9 cents per share.
So I would conclude by arguing that I think Telstra is indeed a smart buy for dividends today. There aren't too many places where you can find a sustainable-looking dividend yield north of 4.75% on the markets right now. But you sure can with Telstra stock.
