I said when I initially bought Telstra at $3.61 in mid-January that it wasn’t necessarily a screaming bargain, but deserved a place in the Fund as a solid Fully Franked dividend payer. I also started with a smaller investment, and said at the time I’d love to add to the holdings if the price fell below $3.40 or so (or low $3.20’s ex-dividend).
Well, that time has well and truly arrived.
Telstra closed at $3.10 on Friday 6th April, down around 14% from my initial buy (or 11.6% including the recent dividend). At this price it’s offering a dividend yield of 7.1%, or 10.1% Fully Franked.
Whenever you see a dividend yield that high, it’s usually a big sign that the market doesn’t believe it will sustain its dividend. It wasn’t long ago that Telstra made a whopping cut to its previously rock solid dividend, expected to be $0.22 per share for FY18, compared to $0.31 for the prior two years. The market seems to think that there’s more to come.
Whilst the market may have some further thoughts on this since mid-January, nothing has really changed in my mind since my original investment case. It would take another pretty big cut to the dividend to change my mind, and I don’t see that happening.
But of course, my premonitions means nothing in the world of investing! Absolutely anything can happen. I’m simply betting that the long-term value on offer is better than what the market is saying right now.
I have no special insights into the industry or inner workings of Telstra. However, what I find much more interesting is the psychology of buying another tranche of a stock you already own – especially when the price has fallen……