Telstra should push higher into the top end of the trading band, as shown on the chart below.
Yield hungry investors buying TLS for the compelling 7% fully franked dividend, will likely push the share price higher, before running into resistance at $4.80.
The last Algo Engine signal on TLS was a sell signal back in January at $5.25
Telstra shares got a boost today as the ACCC decided against letting rival Telcos roam their regional mobile network at a government fixed price.
Some analysts have estimated that mobile communications contributes about 45% of earnings, or $4.2 billion, in 2017/18. Telstra shares have jump by over 4% to reach $4.45 in early trade.
On April 20th, we wrote a blog piece about how TLS at $4.00 per share represented close to an 8% yield on their 15.5 cent dividend. We see value in the stock up to $4.50 keeping the forward yield in the 7.00% area.
Shares of Telstra have dropped close to 15% over the last month. When the shares traded at $4.00 on Tuesday, this was the lowest price since October 2012.
While some of the pricing fundamentals may be unclear going forward, from a pure yield perspective, we see the potential for value.
At current prices, if TLS matches it’s previous dividend of 15.5 cents in September, this puts the stock on a forward yield of over 8%; plus franking credits.
We consider this good value and like the long side of TLS for a move back over $4.50 in the medium-term.
Telstra
The Dow Jones 30 posted it’s 7th straight lower close for the first time since 1978.
As a result, the US 10-year bond yields fell to a 1-month low of 2.38%. An increase in equity market volatility could could lead to another 10 to 15 basis points of downside on the yield.
Some of the local names that have moved higher on the lower yields have been SYD, TCL, WFD and, to a lesser degree, TLS.
It’s likely interest rate stabilization will work as a near-term cap on these companies and allow for a covered call strategy to enhance the portfolio returns
Telstra shares are down over 4% in early trade as Australia’s largest telecommunication company announce half-yearly profits down 14.2% and revenue 3.6% lower.
The company reported half-yearly profits of $1.79 billion compared to $2.09 billion this time last year. Revenue fell to $12.8 billion from $13.3 billion over the same period of time.
Their EBITDA of $5.18 billion was at the low end of earlier guidance, which is a sign that Telstra is undergoing a difficult transition to the post-NBN world.
The company announced an interim dividend of 15.5 cents per share, fully franked, which returns $1.8 billion to shareholders.
Our Algo Engine created a short signal in January at $5.27
Until October 2016, TPG Telecom was the fast growing telco with almost 20% EPS growth whilst trading on a low 2% yield.
Then came the earnings update and the company suggested future EPS growth will be more like 5%. If Telstra is growing earnings at 3 – 5% and paying a 6% yield, why would an investor buy TPG on a substantially different yield or valuation?
You just wouldn’t. As such, we’ve watched TPG sell-off from $12.50 to $6.20 and the stock is now back on a 4.5% yield. TPG will likely find buying support now and the market is hoping EPS growth will creep higher into the range of 5 – 10% to support the yield differential with Telstra.
We’ve been buyers of Telstra at sub $5.00 and we’re looking for the stock to trade $5.50 before evaluating a covered call option strategy.
We’ve been buyers of Telstra from the recent lows and see the possibility of the stock trading into the $5.40 to $5.70 range in the weeks ahead. We are undecided if we sell covered calls over TLS and will likely wait until the February earnings result, to see what the underlying EPS growth trends look like.
We have TLS on a 6% yield and delivering around 4 – 6% EPS growth into 2017.
Telstra (TLS.ASX) released its FY16 result with total income up 2.3% to $26.5bn and EBITDA down 3.9% to $10b, final dividend of $0.155 taking the full year dividend to $0.31 FY17 outlook is for 5% income growth and 3 – 5% EBITDA growth. Capital management of $1.5bn in the form of a share buyback will be welcomed by investors.
We have been buyers of Telstra since the $5.20 low in June and again on this pullback it’s worth looking for an entry point.
Long TLS.ASX
We had a buy signal at $5.20 in June. Telstra is now in a higher high, high low technical pattern and supported by 6% div yield. Investors are positioning ahead of the upcoming 1.5billion dollars to be retuned to shareholders in the next 6 months. TLS can rally through to $6.00 before investors may wish to look at locking in gains.
Long TLS. ASX
Income buyers will start to look at TLS ahead of the August dividend. Buyers are redescent at the moment due to macro issues with Brexit but now is the time to start looking at long exposure in TLS on this exhaustion in the pullback to $5.25 – $5.30.
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