Telecommunications giant Telstra Corporation Ltd's (ASX: TLS) share price is up almost 15% in 2019 and the future looks promising.
Following half-year results that were in line with market expectations and the emergence of new markets, investors seem to be optimistic about the future of Australia's largest telco.
Slow burner
Telstra reported half-year results in the middle of February with the company's results in line with market expectations. Net profit was down nearly 28% to $1.2 billion for the first half of 2018 and revenue was a subdued $13.8 billion in comparison to $14.4 billion the previous year. Whilst mobile revenue increased 2.4%, underlying earnings fell 3% reflecting the competitive environment and declining margins of profit in fixed services. Telstra also announced that it will be paying a reduced total interim dividend of 8 cents in comparison to 11 cents last year and advised the market that they should meet guidance for the year.
Emergence of the post-paid market
The intensely competitive market faced by Telstra has reflected in the company's declining earnings and dividend yield. Amid these challenges, there are some positive developments that have investors optimistic about the company's future. Thanks heavily to its new low-cost mobile brand Belong, Telstra was able to beat market expectations by announcing it added 239,000 customers, achieving a 50% share of the post-paid mobile market.
As mobile emerges as the main earner for telcos, Telstra is well positioned to take advantage of the evolving customer needs. The company, which charges consumers more than its rivals, has seen average revenue per user come under great pressure as rivals cut prices. To maintain its cost structure and margins of profitability, Telstra has indicated plans to invest heavily into customer loyalty programs. The idea to reward and recognize customers as individuals could give Telstra a great competitive advantage in a fiercely competitive market.
Foolish takeaway
In my opinion, the thin margins offered by the rollout of the national broadband network (NBN) will further weigh down earnings and dividends in the near future. However, I also think that the possible merger of TPG Telecom Limited (ASX: TPM) and Vodafone could provide some breathing space within the industry.
With the onset of 5G and improvements to the NBN, growth and demand within the telecommunications sector is only going to increase. In addition, the changing demands of consumers and the emergence of the post-paid market presents a great opportunity.
By adding value and maintaining customer loyalty, Telstra seems well poised to take advantage of the opportunities presented and could once again become a great dividend yield play.
If you want to see more high yield companies, check out these 3 top dividend shares for 2019.
