Move over Bill Clinton, there's a new comeback kid in town… the Telstra Corporation Ltd (ASX: TLS) share price has just today crossed the $4 mark for the first time since August 2017, before retreating slightly to be trading for $3.98 per share at time of writing.
Today's move caps off a remarkable year for Telstra – its shares started 2019 at $2.77, but on today's prices they have appreciated 44% for the year so far.
From darling to dog
If you asked anyone 12 months ago what they thought of Telstra, you would have probably met with a stream of expletives, as Telstra shares had just finished a three-year downward spiral. Telstra shares were trading for more than $6.60 in February 2015, but by the time June 2018 rolled around, you were looking at a record low of $2.62.
A perfect storm of negativity got Telstra to this low point. When Telstra was forced to sell its old copper network to the newly formed NBN Co, it removed the company's formidable (and monopolistic) hold on Australia's telecommunications infrastructure that its competitors were forced to rent from Telstra to compete with… Telstra. Even though this was probably a good thing for anyone who didn't own TLS shares, it still smashed a massive hole in Telstra's earnings and its ability to maintain its famous dividend. This spooked investors who went scrambling for the exits and pulled Telstra's share price with it.
From dog to darling
But a subsequent perfect storm of positivity has pulled Telstra back from the brink to the levels we see today.
Telstra's dividend is looking a lot more stable now and is still yielding 3.76% (before franking) on current prices.
Telstra's arch-rival Optus has pulled back from setting market-leading prices, which places less pricing pressure on Telstra.
Telstra's CEO Andy Penn has been (so far) successfully implementing a well-received cost cutting plan known as T22, which aims to plug the NBN earnings hole through staffing cuts and digitalisation of Telstra's services.
Another Telstra rival, TPG Telecom Ltd (ASX: TPM), has had a horrible year, with the Federal Government driving a stake through its plans to build a Huawei-engineered 5G network. The Chinese-owned Huawei has been banned from building telecom infrastructure in Australia, placing TPG's 5G plans on ice for the foreseeable future. On top of this, TPG's planned merger with UK-based Vodafone was blocked by the ACCC, which would have given Telstra a larger competitor.
Telstra is now regarded as the leader in the race to build an Australian 5G network, and investors are now assuming this will lead to a new source of earnings for the company down the road.
Foolish takeaway
Telstra has been a big winner for investors in 2019 so far, but in my opinion, Telstra's redemption is now complete, and the share price doesn't have too much room to grow further. The right time to buy was six months ago, and a buy-in today is more of a bet on 5G than a screaming bargain.
