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How will the Telstra share price perform in the 2020s?

James Mickleboro
Telecommunications, phone

The Telstra Corporation Ltd (ASX: TLS) share price has been on a bit of a rollercoaster ride in the 2010s.

Since starting the decade at around $3.38, the telco giant’s shares have been as high as ~$6.60 and as low as ~$2.50.

It now looks set to close out the decade at $3.64, almost 8% higher than where it started it.

And after including the many dividends that it has paid over the period, its shares have provided a total return of ~6.4% per annum.

Whilst this isn’t the worst return you’ll find in the 2010s, it trails the market average of approximately 8.1%.

Why has Telstra underperformed in the 2010s?

The main drag on Telstra’s performance in the 2010s has been the introduction of the National Broadband Network.

This impacted its core business greatly through the loss of its lucrative retail and wholesale landline telephone services and its competitive advantage in home broadband.

In addition to this, a growing number of challengers in the mobile market such as Amaysim Australia Ltd (ASX: AYS), Kogan.com Ltd (ASX: KGN), and TPG Telecom Ltd (ASX: TPM) stole market share away from the company and put downward pressure on pricing.

The decline in its earnings inevitably led to a series of dividend cuts, which led to many investors heading to the exits.

Will things be better in the 2020s?

I’m optimistic that things will be far better for Telstra in the 2020s.

This is due to a combination of factors including the state of the NBN rollout, its T22 strategy, and easing competitive pressures in the mobile market.

In respect to the NBN rollout, peak NBN pain is due to hit Telstra in FY 2021. This means that beyond this point the negative impact on its earnings will begin to ease.

Combined with the billions of dollars of costs that are being stripped out via the T22 strategy and the return of rational competition, I feel a return to earnings growth is on the horizon.

Another positive is that in the meantime, I believe Telstra’s free cash flows are sufficient to support its 16 cents per share fully franked dividend. I expect this to prevent further cuts to its dividend moving forward.

Which certainly is good news for income investors in this low interest rate environment. At present its shares offer an estimated forward fully franked 4.4% dividend yield.

Overall, I believe Telstra has the potential to be a strong performer over the next decade. As a result, I would be a buyer of its shares today.

The post How will the Telstra share price perform in the 2020s? appeared first on Motley Fool Australia.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Telstra Limited. The Motley Fool Australia has recommended Kogan.com ltd. 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