Are Telstra shares a good deal at $5.32?

Telstra's growing share price is starting to lower its dividend yield…

Telstra Group Ltd (ASX: TLS) shares have enjoyed an uncommonly lucrative few months.

At the time of writing, this ASX 200 blue chip telco stock is going for $5.32 a share. That puts the company up a happy 9.34% above the $4.87 it started 2026 at. Telstra is also 28.86% higher than the $4.48 it was trading at this time last year.

It gets even better for shareholders, though. Back in late April of 2024, Telstra was trading at just under $3.60 a share. An investor who bought around those prices would be looking at a near-50% gain at today's levels. All in all, not bad for a boring old telco.

Here's where the fly in the ointment might lie.

Telstra is a financially strong and sound company. But it is not growing at the levels its share price trajectory might suggest.

A man sits in contemplation on his sofa looking at his phone as though he has just heard some serious or interesting news.

Image source: Getty Images

Telstra shares at $5.32?

Back in February, Telstra's half-year earnings revealed an average earnings growth rate of 7% between the first half of FY2021 and the first half of FY2026. That's fine for a mature blue chip like Telstra. But Telstra's shares have been growing at a much faster rate in recent years. That means Telstra shares are getting more expensive on an earnings-multiple basis. Its dividend yield is shrinking as a result.

Even a year or two ago, it wasn't uncommon to see Telstra shares trading on a dividend yield of 4.5% or even higher. Today, it's languishing at 3.76%.

That's objectively a decent dividend yield. But it is low by Telstra's historical standards. It's also not too competitive in today's high-interest-rate world. After all, you can get a 12-month term deposit with a 5.4% interest rate right now.

That's not Telstra's fault, of course. It has been increasing its raw dividends per share at a healthy rate in recent years. To illustrate, 2026's interim dividend of 10.5 cents per share was a 10.5% increase over the same dividend from 2025.

It's just that Telstra shares have been increasing in value even faster.

Foolish takeaway

Looking at where Telstra shares are today, and the dividend yield they are trading on, I have to conclude that this company is not really offering much value at the moment. Telstra is a strong company, with formidable assets, a powerful brand and irreplaceable infrastructure.

However,  as Charlie Munger used to say, 'no company, however wonderful, is worth an infinite price'. If you, as an income investor, are happy with a starting yield of 3.76%, then there are certainly worse options out there. But I won't be buying Telstra at the prices we are seeing right now.

Motley Fool contributor Sebastian Bowen 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 has positions in and has recommended Telstra Group. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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