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Why the Telstra share price is up 10% so far in 2020

Sebastian Bowen
beat the share market

The Telstra Corporation Ltd (ASX: TLS) share price has had a strong start to the new year and decade. Telstra shares finished 2019 at $3.54 a share, but last booked a price of $3.88 in pre-long weekend trade. Telstra shares even got up to $3.91 on Friday before closing at $3.88.

That represents a 9.6% gain for the year so far (and it’s not even February yet). It’s the highest level the Telstra share price has been at since August last year (briefly) and before that August 2017.

Why are Telstra shares shooting the lights out?

Well, a large portion of the gains can likely be attributed to the overall bullish sentiment that the broader markets are currently enjoying. Since New Year’s Eve, the S&P/ASX 200 (INDEXASX: XJO) has banked a 6% gain (from 6,880 points to 7,090). A rising tide lifts all boats, as they say – and Telstra is certainly one of those lucky maritime vessels.

But that’s an easy answer – so let us dive a little deeper (I can promise no more nautical references from now on).

Telstra has an important event on its horizon next month, with the Federal Court of Australia ruling on whether it will allow Telstra’s competitors TPG Telecom Ltd (ASX: TPM) and Vodafone to merge their operations. If the green light is given, it will result in a larger, consolidated competitor to Telstra.

Despite this apparent threat, I think it’s unlikely that a newly merged TPG/Vodafone will be a real long-term concern to Telstra. The company’s dominance in the mobile market is very solid, and Vodafone has a lot of catching up to do in its 5G network plans. That’s why I don’t think the markets are phased too much by this upcoming decision, either way.

What about Telstra’s dividends?

Another major part of Telstra’s appeal is likely to be the dividends that Telstra shares pay. Since the impact of the nbn on Telstra’s future earnings is becoming clearer, it seems less and less likely that Telstra will need to cut their dividend any further after slashing shareholder payouts in 2017.  

On current prices, investors could expect a fully franked yield of 4.12% from Telstra shares (including special dividend payouts), which is not a bad sum from a defensive income play like Telstra, especially in this era of ultra-low interest rates.

Foolish takeaway

Even if 5G technology doesn’t take off (but in my opinion it will), the company’s dominance in both the mobile and fixed-line markets should ensure a robust earnings base for the foreseeable future. Thus, I think Telstra shares are a solid buy for income today and would do well in a well-balanced dividend portfolio.

The post Why the Telstra share price is up 10% so far in 2020 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