There a few reasons why Telstra Corporation Ltd (ASX: TLS) shares could be a buy.
Telstra is our country’s oldest telecommunications business, having built the first telegraph line in 1854. In 2019, it provides more than 17 million retail mobile services, around 5 million retail fixed voice services (e.g. home phones) and 3.6 million broadband services. Telstra also has operations in eHealth, network applications and subsea cabling. In 1997 (until 2006), the Government sold Telstra to Australian investors by listing the shares on the ASX. The second batch of Government share sales, called “T2”, was conducted in 1999 at $7.40 per share.
Why Telstra Shares Could Be A Buy
Telstra’s Dividend Yield
Telstra has always had a reputation as a dividend share with a high dividend payout ratio from the large amount of cashflow that it produces every year. Perhaps its dividend was too big, sometimes it was paying out more than 100% of its earnings. The recent drop in the dividend was down to a fall in earnings and a reduction in the payout ratio.
Even so, when you take into account the new sustainable dividend policy, it still has an attractive dividend yield. Assuming the dividend isn’t cut any more from 16 cents per share it has a fully franked dividend yield of 4%.
5G Network
Telstra has lost its advantage as the years have gone by. Low-cost competitors offer very low prices to customers like AldiMobile and Amaysim Australia Ltd (ASX: AYS) have made Telstra lower prices and
lose customers.
But the introduction of 5G into the mix could bring back Telstra’s mobile advantage. It has a reputation for having the best network and it can capitalise on that with 5G and win a lot more customers (and revenue).
There are plenty of new services that will need fast data such as automated cars and virtual/augmented reality.
Summary
Is it worth buying Telstra shares today? According to CommSec it’s valued at 25 times the estimated earnings for the 2021 financial year. For me, this is too expensive for a long term market-beating buy.
I’d much rather buy the shares of the reliable businesses in the free report below compared to Telstra.
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