Is the Telstra Corporation Ltd (ASX: TLS) share price an ASX buy at today’s levels?
Telstra shares are up around 8.5% since the start of 2020, so ASX investors certainly seem to think so. That puts Telstra on at a healthy price-to-earnings ratio of 21.2 at the current share price (at the time of writing) of $3.84. But is this too high for the ASX’s biggest telco?
The comeback kid?
Former US President Bill Clinton is known as the comeback kid for his come-from-behind win in the 1992 New Hampshire presidential primary.
But I think Telstra is the real comeback kid of the Aussie share market. You only have to go back to June 2018 to find a time when Telstra shares were going for under $2.60 a share. But that was eighteen months and 48% ago.
It seems today, it’s full-steam ahead for Telstra. Yes, a grossed-up 10% dividend yield and $6 price tag seem like distant memories these days. But so are Telstra’s dividend cuts and (a big chunk of) the pains that the company endured for the rollout of the nbn.
Today, Telstra shareholders look forward to a 5G future and are being kept company by Telstra’s still-generous grossed-up 5.96% dividend yield (which includes the nbn ‘special’ dividends).
What does the future hold for Telstra?
As foreshadowed, Telstra is heavily investing in its new 5G network, which is being rolled out as we speak. 5G is the next evolution in mobile internet technology and promises (according to Telstra) to be as transformative as the 4G network that precedes it. Potential applications range from nbn-beating speeds to increased connectivity and the ‘Internet of Things’.
If at least some of these potential applications bear fruit, it’s likely that Telstra’s 5G investment will pay off handsomely. This will also help counteract the lower-margin nbn side of the business.
However, that is still something of a ‘what-if’ scenario. Saying that, even if 5G turns out to be a damp squib, I still think Telstra’s dominance of both the mobile and fixed-line telco markets is enough to ensure a bright future for this company.
Today, I think the Telstra share price strikes a nice balance between the two above scenarios. I wouldn’t call Telstra shares overly expensive, but I also wouldn’t call them cheap at 21x earnings. Still, if you’re after a reliable income stock with some potential growth runways, Telstra is a great candidate for your portfolio, in my opinion.
The post Is the Telstra share price a buy today? appeared first on Motley Fool Australia.
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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.
The Motley Fool's purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. 2020