Should Telstra Corporation Ltd (ASX: TLS) be considered as a great ASX dividend share in May 2021?
Well, let’s have a look at some of the things that could make it a good dividend share.
Telstra’s dividend yield
The current Telstra dividend is $0.16 each year. That’s the target of the board. The dividend is a lot lower than it was a few years ago, but it’s being consistent with the payments.
This consistent dividend translates to a fully franked dividend yield of 4.6%. When you include the franking credits in the yield, it’s 6.6%.
That’s not the biggest yield around but it’s a solid yield in this world where interest rates are next to zero.
Dividend growth
If a business isn’t growing then it’s in danger of going backwards.
The Telstra profit has been falling over the last five years because of the lower profit margins due to the shift to the NBN and low price competitors in mobile. The dividend is only as strong as the profit over the longer-term.
If Telstra’s profit grew then the dividend could increase. But it hasn’t grown in around five years. There are plenty businesses that are consistently growing the dividend like Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) and Brickworks Limited (ASX: BKW).
Capital growth
A business can produce solid returns if it can deliver capital growth over the longer-term. Telstra’s share price is lower than it was five years ago, four years ago and two years ago.
Ultimately, share prices follow profit growth. As I’ve already mentioned, Telstra’s profit has been going in the wrong direction.
Telstra is hoping to grow its EBITDA (EBITDA explained) in FY22 so that could make a difference to the bottom line. But it already has such as large market share that I’m not sure how much more it can grow unless 5G can unlock new services.
It doesn’t have a track record of producing capital growth in its listed life.
Summary thoughts on the Telstra share price and dividend
Telstra offers a nice yield. I’d probably prefer to own shares over cash in the bank.
However, I’d prefer to look for other ASX dividend shares that offer both income and growth.
