Year-to-date the Telstra Corporation Ltd (ASX: TLS) share price has lost approximately a third of its value following its decision to slash its dividend down from 31 cents per share to 22 cents per share in FY 2018.
Is this a buying opportunity?
I think it is. At the current share price Telstra's shares will provide a fully franked 6.3% dividend over the next 12 months. In this low interest environment, I think this hard to say no to.
Especially given the multiple its shares trade on at the moment. At just 10x trailing earnings I think it is unlikely that its shares will drift much lower from here, subject to any unforeseen events.
Whereas I do believe there is the potential for its shares to climb back to the $4.00 mark over the next few months now that its negative news flow is out of the way.
I'm not alone in thinking this way. Earlier this month both Morgans and Deutsche Bank rated Telstra as a buy with price targets of $4.15 and $4.05, respectively, on its shares.
Should the Telstra share price rise to the lower of the two price targets, it would mean a share price return of almost 17% over the next 12 months. This extends to over 23% when you factor in the dividend.
While there is of course no guarantee that its shares will rise to this level, I believe the limited downside risk and significant upside potential makes it a compelling investment option for investors today.
In light of this, I think Telstra has the potential to be a market beater in 2018 and would choose it ahead of rivals TPG Telecom Ltd (ASX: TPM) and Vocus Group Ltd (ASX: VOC).
