Charlie Aitken of Aitken Investment Management says Telstra Corporation Ltd (ASX: TLS) shares would be a buy closer to $4.
According to Livewire Markets, Aitken said Telstra is starting to look interesting and would consider buying shares in the telco heavyweight around $4. "it's pretty close to here, I'd actually say $4 is it," he was quoted as saying. "I think on forward earnings of 11 times and a cut dividend yield of 6% fully franked – I think there is a line in the sand there."
Buying when others are fearful
With shares in the $49 billion telecommunications company falling 28% over the past year, no doubt there will be plenty of shrewd analysts lining up to hear Telstra's results on August 17th.
However, many investors will also be bearish going into the meeting. According to The Wall Street Journal, the average analyst price target on Telstra shares is $4.60 with five analysts holding either an "underweight" or "sell" rating.
Dividend cuts ahoy?
The real focus will be on Telstra's dividend decision. Last financial year, Telstra paid hefty dividends of 31 cents per share. Expectations are now set at a dividend of 30 cents per share for its 2018 financial year. However, some analysts are forecasting its payment to drop to as low as 24 cents per share.
I showed here that even if Telstra cut its dividends, its current valuation may indeed look good. Nonetheless, my guess is that its share price would fall on such news.
Even still, that may be a win-win for the shrewd analysts: a more sustainable dividend, good valuation and a lower share price.
Buy, hold or sell
In my opinion, Telstra shares would be a good investment materially below $4 per share. However, I'm not rushing out to buy any shares at their current price of $4.14. In fact, I wouldn't buy them until we have had time to digest the full-year results later this month.
