The Telstra Corporation Ltd (ASX:TLS) share price is continuing to fall today. Why are investors getting cold feet over this dividend share?
The post Why is the Telstra (ASX:TLS) share price falling today? appeared first on The Motley Fool Australia. –
The Telstra Corporation Ltd (ASX: TLS) share price is falling today. Telstra shares are, at the time of writing, down 0.63% to $3.13 a share. That’s a slight underperformance when compared to the S&P/ASX 200 Index (ASX: XJO), which is down 0.77% today to 6,786 points.
It’s a disappointing move for shareholders. Especially for those who have watched the Telstra share price climb more than 10% year to date until last week. After today’s share price moves, Telstra is now up just 3.5% since the start of the year.
So what’s been going on with the ASX’s biggest telco?
Earnings proved a hit
Back on 11 February, Telstra reported its earnings for the 6 months to 31 December 2020. At the time, the Telstra share price responded very positively. The share price rose by almost 5% between 10 February and 15 February to $3.32 a share. That was a rough 6-month high for Telstra shares.
Investors seemed to applaud the announcement that Telstra’s T22 cost-cutting program would be expanded to an approximate figure of $2.7 billion in savings by FY2022. T22 was halted last year as a result of the COVID-19 pandemic.
And of course, there was the dividend. Telstra has paid a 16 cents per share annual dividend for a few years now. That consists of 6 cents per share in special nbn dividends, and 10 cents in ordinary dividends. Since Telstra has been battling falling revenues for a while now due to the nbn rollout, there was concern that Telstra would be forced to cut this dividend in 2021.
But Telstra defied these fears and announced that it would indeed be paying out an annual dividend of 16 cents per share, fully franked, in 2021. For some context, that would equate to a forward dividend yield of 5.13% on the current share price, or 7.33% grossed-up with franking. As you might imagine, a yield of that size is an attractive proposition for investors, especially those primarily seeking dividend income. Especially so in today’s world of near-zero interest rates.
Investors get cold feet over the Telstra share price
But despite this warm initial reception to the company’s earnings, investors seem to have gotten cold feet over the Telstra share price over the past week or so. In fact, Telstra shares are now down around 6% since 16 February, while the ASX 200 has only lost around 1.9% over the same period. There’s no obvious reason why either. There have been no major announcements out of the telco since its earnings report. And, as our general manager Bruce Jackson pointed out last week, several major brokers have retained strong price targets for Telstra shares recently. Targets well above the current share price to boot.
Perhaps the growth of other shares over the past few weeks (e.g. Zip Co Ltd (ASX: Z1P)) are just simply more exciting for investors than an old blue-chip share like Telstra.
But remember, the lower the Telstra share price gets, the higher its dividend yield on offer will be!
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Sebastian Bowen owns shares of Telstra Limited. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of ZIPCOLTD FPO. The Motley Fool Australia owns shares of and has recommended Telstra Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.