It sure has been an interesting year for Telstra Corporation Ltd (ASX: TLS) shareholders. After starting the year at $2.77, Telstra shares have spent 2019 steadily climbing to their new 52-week high of $4.01, reached on August 8 – a YTD gain of nearly 45% (not including dividends). This is an incredible move for this blue-chip stalwart and the ASX's 8th largest company.
But since then, TLS shares have dipped almost 7%, closing at $3.74 yesterday. So does this level represent a buying opportunity for Telstra? Lets take a look.
Telstra gets shaky
Telstra's results for the 2019 financial year didn't exactly paint a rosy picture. Earnings (EBITDA) were down 21.7% to $8 billion and net profits after tax were also down by 39.6% to $2.1 billion. On top of this, Telstra's final dividend was slashed to 8 cents per share (totalling 16 cents per share for FY19). The market was expecting these numbers though – most of Telstra's current pain is due to earnings erosion from the NBN (which is set to continue). But on the bright side, the company's plans to cut costs by $2.5 billion by 2022 are on track, as are Telstra's plans to build its 5G network.
Is the Telstra share price looking cheap?
That depends on what you would consider cheap. At $3.74, TLS shares have a price-to-earnings ratio of 20.63 – which is above the current ASX 200 average of 17.94. In my opinion, Telstra's current share price is assuming that Telstra is able to carve out a hefty earnings stream from its 5G network down the road.
I cannot with confidence predict if this will happen, but I am confident that Telstra will be the biggest ASX beneficiary of 5G when it does get rolled out – no other company has matched the level of 5G investment that Telstra has committed. In addition, Telstra's continued dominance of both the mobile and fixed-line markets means (in my opinion) that a majority of consumers are likely to go with Telstra if they are seeking a 5G product in the future.
Foolish takeaway
With a dividend of 16 cents per share, at current prices Telstra is offering a 4.28% yield (6.11% grossed-up). This makes Telstra a formidable income share in its own right (and I don't see the dividend going down any further from now on). So if you're after a nice yield, I think you could do worse than Telstra shares at the current price but if you're counting on a 5G-fuelled share price rocket ship, the jury's still out on that one.
