The Telstra Corporation Ltd (ASX: TLS) share price has been an interesting one to watch in 2020 so far. Telstra shares started the year off at $3.58 but quickly descended to a new 52-week low, along with the rest of the S&P/ASX 200 Index (ASX: XJO), when the coronavirus-induced market crash was in full swing during March.
In the worst throes of the crash, Telstra shares hit $2.87. But since then, the Telstra share price has recovered somewhat and closed trading on Monday at $3.36. From its March low to its current share price, Telstra shares have 'only' recovered around 16%, whereas the ASX 200 has gained more than 32% over a similar period.
So does this mean Telstra is a bargain buy right now? Or Is this old telco giant best left in the dust, as most ASX investors seem to believe?
Why are Telstra shares lagging the ASX 200?
I think the recent underperformance of the Telstra share price is a case of investors getting bored and looking elsewhere for some excitement. The coronavirus pandemic has had relatively little impact on Telstra and its business model, especially compared to other ASX shares. Telstra hasn't yet told investors to expect any real upside or downside as a result of the pandemic yet.
In contrast, TPG Telecom Ltd (ASX: TPG) has been dominating the ASX telco news recently with its merger with Vodafone and spinoff of Tuas Ltd (ASX: TUA). It's possible that TPG has been sucking some of the oxygen in the telco space and left Telstra with little love from investors of late.
The only substantive news we've heard out of Telstra is its suspension of the T22 cost-cutting campaign the company has embarking on over the last few years. As this involved reducing staff numbers, it's very understandable (and indeed commendable) that Telstra has decided to slow this program down in the current economic climate. Of course, this also means that Telstra will be incurring more costs in the short-term that the company otherwise planned, which may also be contributing to the Telstra share price lagging. But it's still a good thing for the company's reputation and business health over the long-term, in my view.
Why Telstra is a great ASX dividend pick for August
Despite its cost-cutting program being put on ice, I still think Telstra is a top ASX share pick for August. Why? Well, 2 reasons.
Firstly, Telstra remains a strong dividend paying share. I don't foresee Telstra reducing its 8 cents per share dividend when it's due to come in late next month. That would give Telstra an annualised dividend yield of 4.8% on current prices, or 6.86% grossed-up with Telstra's full franking. Compared with almost all other ASX dividend shares on the ASX 200, this yield helps Telstra stand out from the crowd.
Secondly, the company is investing heavily in the new generation of mobile technology — 5G. Of all the ASX telcos, I think Telstra will come out on top of the 5G race due to its existing mobile superiority and its market-leading investment in a new 5G network. The commercial benefits of 5G aren't yet fully understood. But if 5G does turn out to be a lucrative technology, Telstra is first in line to benefit, in my view.
Foolish takeaway
I think Telstra is a solid, defensive business with a significant potential upside coming its way from 5G. As such, I think this company is a top dividend buy for August and beyond at today's prices.
