Down 10% in three weeks, the Telstra Corporation Ltd (ASX: TLS) share price is starting to look pretty good at $4.59, isn't it? This is the lowest shares have traded in almost 4 years. With a 6.8% dividend that grosses up to nearly 10% once franking credits are included, all Telstra shareholders have to do is sit there, do nothing, and retire rich. Right?
Wrong. In the first half of 2017, Telstra paid out 15.5 cents per share in dividends, but it only earned 14.8 cents per share. Telstra paid shareholders more money than the whole corporation earned in the first half of the year.
That's not as unusual as it might sound. Several times in the past, Telstra has paid a first half dividend that was bigger than its cash flows, because of the timing of payments that make the company's earnings stronger in the second half. Yet with earnings falling, capital expenditure on its network rising, and the company seeking to saddle itself with even more debt, one has to wonder if the Telstra dividend dance is coming to an end.
For myself, there are two growing dividend companies I would prefer to buy before Telstra: Blackmores Limited (ASX: BKL), and Greencross Limited (ASX: GXL).
Blackmores has an attractive vitamin and supplement retailing business, supported by a strong balance sheet and attractive business opportunities in south east Asia. While the recent results knocked some of the gloss off the company's share price, Blackmores is in an attractive position and is a good prospect for long-term out-performance, in my opinion.
Greencross is also a decent prospect, with the company's combined vet and retail business growing strongly both by attracting new customers, and expanding its store network. Its results show the progress the company is making towards its goals, and as the migration to in-store vets continues, Greencross appears to have a visible pathway for an additional 3-4 years of future growth. It is important not to overpay for this type of business however, and I believe Greencross is an attractive prospect below $7.
