Does Telstra Corporation Limited (ASX:TLS) Have A Place In Your Portfolio?

Dividends can be underrated but they form a large part of investment returns, playing an important role in compounding returns in the long run. Historically, Telstra Corporation Limited (ASX:TLS) has paid a dividend to shareholders. It currently yields 5.0%. Does Telstra tick all the boxes of a great dividend stock? Below, I’ll take you through my analysis.

Check out our latest analysis for Telstra

5 questions I ask before picking a dividend stock

Whenever I am looking at a potential dividend stock investment, I always check these five metrics:

• Is it the top 25% annual dividend yield payer?

• Does it consistently pay out dividends without missing a payment of significantly cutting payout?

• Has dividend per share risen in the past couple of years?

• Can it afford to pay the current rate of dividends from its earnings?

• Will it be able to continue to payout at the current rate in the future?

ASX:TLS Historical Dividend Yield September 6th 18

How well does Telstra fit our criteria?

The current trailing twelve-month payout ratio for the stock is 50.0%, which means that the dividend is covered by earnings. In the near future, analysts are predicting a higher payout ratio of 85.2%, leading to a dividend yield of 5.7%. However, EPS is forecasted to fall to A$0.22 in the upcoming year. Therefore, although payout is expected to increase, the fall in earnings may not equate to higher dividend income.

If there is one thing that you want to be reliable in your life, it’s dividend stocks and their constant income stream. Not only have dividend payouts from Telstra fallen over the past 10 years, it has also been highly volatile during this time, with drops of over 25% in some years. This means that dividend hunters should probably steer clear of the stock, at least for now until the track record improves.

In terms of its peers, Telstra has a yield of 5.0%, which is high for Telecom stocks but still below the market’s top dividend payers.

Next Steps:

If Telstra is in your portfolio for cash-generating reasons, there may be better alternatives out there. However, if you are not strictly just a dividend investor, the stock could still offer some interesting investment opportunities. Given that this is purely a dividend analysis, you should always research extensively before deciding whether or not a stock is an appropriate investment for you. I always recommend analysing the company’s fundamentals and underlying business before making an investment decision. I’ve put together three pertinent aspects you should look at:

1. Future Outlook: What are well-informed industry analysts predicting for TLS’s future growth? Take a look at our free research report of analyst consensus for TLS’s outlook.

2. Valuation: What is TLS worth today? Even if the stock is a cash cow, it’s not worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether TLS is currently mispriced by the market.

3. Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.

To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.