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Is Telstra still a buy for ASX dividend income?

Sebastian Bowen
Telecommunications, phone

Is the Telstra Corporation Ltd (ASX: TLS) share price still a buy for ASX dividend income today?

After a stellar 2019 so far, the Telstra share price seems to have found itself in a rut lately. TLS shares started the year off at $2.77, but spent the first half of 2019 on a steadily upward trajectory, before topping out at $4.01 a share back in early August.

The market seemed to have gotten ahead of itself though. Since August, Telstra shares have trended away from this high. They got all the way down to $3.40 early last month, before finally finding some middle ground around the $3.50 mark where they sit around today. 

Still, even on today’s prices ($3.48 at the time of writing), Telstra has returned 25% YTD and is currently offering a dividend yield of 4.6%, or 6.57% grossed-up.

Is Telstra a buy for dividend income?

On the face of it, this juicy dividend seems to sell itself. But the question most investors are asking of Telstra is whether the dividend is sustainable. Telstra has made no secret of the fact that the rollout of the National Broadband Network (NBN) is simultaneously rolling a wrecking ball through Telstra’s earnings.

Now the company says that this destructive effect will be most painful through the 2019 and 2020 financial years. When the transition is finally complete, Telstra is estimating its earnings will return to a healthy state.

From looking at the company’s numbers, I personally think it can maintain its 16 cents per share dividend until then. But you should keep in mind that this may well change if the NBN process gets muddied further.

Also driving optimism at Telstra is the rollout of the next-generation 5G mobile technology – which looks set to ramp up over the next year or two. 5G is estimated to provide internet speeds that greatly exceed what the current 4G network can support – which the company is hoping will lead to a wave of new customers on the Telstra 5G network.

Foolish takeaway

There are still risks with Telstra, but I feel potential upsides of 5G outweigh the current NBN woes the company is going through right now. Although Telstra is far from the most reliable dividend stock you can own today, I still think its 4.6% dividend has a place in an income portfolio going forward.

The post Is Telstra still a buy for ASX dividend income? 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. 2019