Why shares in Australia’s largest telco are on fire right now.
The post What’s happening to the Telstra (ASX:TLS) share price? appeared first on The Motley Fool Australia. –
The Telstra Corporation Ltd (ASX: TLS) share price appears to have regained investors’ attention this year. After a tough 5 years or so for the Aussie telco, its shares have climbed 26% higher in 2021.
That’s a good return for shareholders given the S&P/ASX 200 Index (ASX: XJO) is up 11% over the same period. In case you’ve missed it, here’s a quick recap of how the Telstra share price has performed recently.
What’s happening to the Telstra share price?
Wednesday’s session was yet another good one for Telstra, with the group’s shares gaining 0.80% to close at $3.78 per share. Many investors will be wondering if they’re finally going to see the fruits of Telstra’s ambitious turnaround plans.
There are a number of forces at play in the Aussie telecommunications sector right now. There is the ever-present threat of NBN Co taking over market share, while Telstra is now competing against the recently-merged TPG Telecom Ltd (ASX: TPG). That means Australia’s leading telco has moved to adapt and make changes to boost its long-term prospects.
One such move has been the company’s cornerstone $2.5 billion productivity program. The program is focused on cost-cutting and creating a simplified entity. It seems to be working, with Telstra reporting a further $201 million reduction in fixed costs in its half-year results release.
By slashing its cost base, Telstra can ultimately target higher earnings figures. Even if revenue remained unchanged, a reduction in operating expenses would mean higher earnings before interest, tax, depreciation and amortisation (EBITDA), all else remaining equal.
Higher earnings is music to the ears of dividend-hungry investors. Telstra paid out 125% of underlying earnings in 1H 2021 and investors would be hoping for more if the telco can continue to generate strong cash flow and earnings.
What does recent spin-off mean for shareholders?
It’s not just cost management that has the Telstra share price climbing higher right now. One of the biggest trading days came on June 30, when the telco’s shares spiked 4.4% in value.
The catalyst was an announcement on the sale of its mobile tower business TowerCo. Telstra announced the sale of a 49% stake to a consortium comprising the Future Fund, Commonwealth Superannuation Corporation and SunSuper.
The transaction values Telstra InfraCo Towers at $5.9 billion, with expected net cash proceeds of $2.8 billion. That creates a real possibility of higher dividends for shareholders with the telco flagging 50% of net proceeds would be paid to shareholders in FY2022.
The Telstra share price has been running hot in 2021. Shares in the Aussie telco are up 26% this year and outperforming the benchmark Aussie index.
Investors will be hoping this is a change in fortunes for the perennial dividend share and not just a flash in the pan.
Should you invest $1,000 in Telstra right now?
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Motley Fool contributor Ken Hall has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Telstra Corporation Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.