At the latest Telstra Corporation Ltd (ASX: TLS) share price, it offers a dividend yield of almost 6%. Does that make it a buy for income?
To clarify, that yield I just mentioned includes franking credits. Without the franking credits, the cash yield is 4.1%.
How big is the Telstra dividend payments at the moment?
Telstra is paying an annual dividend of $0.16 per share to investors. It has paid that each year since FY19. It wouldn’t surprise me if FY22 was that payment as well.
In FY21 it also paid a dividend of 16 cents per share. The FY21 ordinary dividend represented a 103% payout ratio of underlying earnings, and was well supported by cashflow (according to management).
The business is also committed to returning around 75% of its net-one-off NBN receipts. It has returned around 74% of receipts received to date since FY19 in the form of dividends.
Extra shareholder returns
Readers may also have seen that Telstra has announced an on-market share buy-back of up to $1.35 billion. That represents around 50% of net proceeds from its InfraCo Towers.
Buying back shares has the benefit of boosting many per-share and equity statistics like earnings per share (EPS).
Is the Telstra share price worth considering for dividend income?
A dividend yield of almost 6% is pretty good in this low interest environment. A year or two ago, I was worried that Telstra may not be able to even maintain the $0.16 dividend per share annual payment.
But the business has been working hard at reducing costs and becoming more efficient, including a large reduction in the amount of management.
Telstra is now expecting a return to full year growth in FY22.
There are also a number of other growth areas that could be good including Telstra Health, Telstra Ventures and the upcoming Telstra Energy.
If Telstra can return to some sort of earnings growth, then it may be able to fund a slight increase to the dividend. I’d prefer to buy Telstra for dividends rather than ones like Commonwealth Bank of Australia (ASX: CBA) or Woolworths Group Ltd (ASX: WOW). However, I think there may be alternatives for dividend income.
