Why I think the Telstra share price could hit $4 in 2020

Here's why I think the Telstra Corporation Ltd (ASX: TLS) share price could hit $4 again in 2020. Dividends may have something to do with it!

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I believe the Telstra Corporation Ltd (ASX: TLS) share price could hit $4 in 2020.

Let's be clear, this isn't an earth-moving price target. Telstra shares have been at $4 before, most recently in August last year. Before then, the ASX telco giant actually spent between 2012 and 2017 above $4 per share, even hitting $6.50 at one point in 2015. We were getting close to $4 in January this year (Telstra touched $3.90), but then the coronavirus pandemic hit and Telstra has been stuck in a rut at around $3.20 ever since. Right now, one Telstra share will set you back just $3.17.

So why do I think Telstra shares can make it back to $4 and potentially beyond in 2020?

There are two reasons:

Telstra shares and dividends

The first is Telstra's dividend. This company has quite an infamous history when it comes to dividend payments. Some shareholders might still not have forgiven Telstra for slashing its dividend back in 2017 from 31 cents per share (annually) to 16 cents today. It's my view, this was partly behind Telstra's massive re-valuation between 2015 and 2018.

But Telstra has managed to keep it's dividend steady at 16 cents per share for close to two years now, and I don't believe there is any danger this will be cut down any further. For one, the dividend is comfortably covered by Telstra's free cash flow. And two, the company is close to putting the damage done to its earnings by the NBN behind it.

So what's so good about Telstra's dividend then? Well, at 16 cents per share (which includes 6 cents in 'special' NBN dividends), Telstra is offering a 5.05% dividend yield. If you include the full franking that Telstra shares also come with, this grosses-up to 7.21%. That's not a bad yield in a zero interest rate environment.

What about 5G?

The second reason I believe Telstra shares could reach $4 this year is the rollout of the new 5G mobile technology. 5G is the next generation of mobile network and promises unprecedented speeds, low latency and increased applications. We don't know for sure just how many benefits 5G will bring to the table, but if the rollout of 4G a few years ago is anything to go by, it looks likely to be good news for all ASX telco companies. And Telstra looks set to be in prime position for this shift. It is investing more into 5G than its competitors, from what I can see, which could see better speeds and range for Telstra's 5G network compared with anything Optus or TPG Telecom Ltd (ASX: TPM) delivers.

Foolish takeaway

All in all, I think Telstra's healthy dividend policy, as well as its investment in 5G technology, could well see the Telstra share price hit $4 again in 2020. As such, Telstra is a share that I'm very happy to own, and I don't anticipate this changing anytime soon.

Motley Fool contributor Sebastian Bowen owns shares of Telstra Limited. The Motley Fool Australia owns shares of and has recommended Telstra Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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