Will Subsea Cables Save The Telstra (ASX:TLS) Share Price?

Telstra is Australia’s largest and oldest telecommunications business, … the Australian Government sold Telstra to Australian investors via the ASX.

Could subsea cables save the Telstra Corporation Ltd (ASX: TLS) share price?

Telstra is Australia’s largest and oldest telecommunications business, having built the first telegraph line in 1854. Today, it provides more than 17 million retail mobile services, nearly 5 million retail fixed voice services (e.g. home phones) and 3.6 million broadband services.

It also has operations stretching across eHealth, network applications and subsea cabling. Starting in 1997 (until 2006), the Australian Government sold Telstra to Australian investors via the ASX. The second batch of Government share sales, called “T2”, was conducted in 1999 at $7.40 per share.

Telstra’s subsea cables

Telstra is committing to a major upgrade of its submarine cable network according to the Australian Financial Review.

Australia’s largest telecommunications business has cables that run from Australia to many countries in the Asia Pacific region including to the United States of America.

Telstra will use US business Infinera to upgrade its huge network of submarine cables, which should increase the capacity of the cables by 160% whilst lowering the power usage.

These cables are important for the high volume of data from services like Netflix and Youtube. Around 40% of all Asian data traffic may be transmitted on Telstra’s cables, which is valuable.

It’s good to see that Telstra is continuing to develop its ‘InfraCo’ infrastructure business. Telstra doesn’t have to rely on just job cuts to send its profit higher. Initiatives such as huge data packs and soon-to-be-released 5G phones could boost profit over the next few years.

However in the meantime, the NBN is still causing damage to Telstra’s profit margins so it’s not all good news. Competition from peers like TPG Telecom Ltd (ASX: TPM) and Amaysim Australia Ltd (ASX: AYS) is really heating up.

Is the Telstra share price a buy today?

Some value investors believe that Telstra now represents good value, even if its earnings take a hit in FY19. Some analyst estimates put Telstra’s earnings dropping by at least 25% in FY19, so it could be valued at around 13 times FY19’s earnings.

There some compelling reasons to buy Telstra, such as 5G, automated cars and the Internet of Things. However, until we find out what the pricing structure of those services is I can’t see sustainable growth of Telstra’s bottom line. There may be more reliable ASX shares out there for your portfolio such as the ones mentioned in the free report below.

3 defensive ASX shares potentially better than Telstra

The Rask Group’s top expert investment analyst has just released a free report which reveals 3 proven ASX shares. They’ve proven themselves to be reliable dividend + growth shares over a decade. Access the report now.

Of course, past performance is not indicative of future performance but as he says in his free report, there are many reasons to keep a close watch on these 3 shares in 2019 and beyond.

Click here to access the free report. Absolutely no credit card details or payment required.


Disclaimer: Any information contained in this article is limited to general financial/investment advice only. The information has not taken into account your specific needs, goals or objectives, so please consider consulting a licenced and trusted adviser before acting on the information. Please read The Rask Group’s Financial Services Guide (FSG) for more information. This article is authorised by Owen Raszkiewicz of The Rask Group, which is a corporate authorised representative No. 1264179 of Strawman Pty Ltd (ACN: 610 908 211) (AFSL: 501 223).

Related Posts:

  • No Related Posts

Why you should own this ASX dividend share instead of Telstra

I think there are many ASX dividend shares that are better income choices than Telstra Corporation Ltd (ASX: TLS). In my opinion, one of those better …

I think there are many ASX dividend shares that are better income choices than Telstra Corporation Ltd (ASX: TLS).

In my opinion, one of those better ideas is Arena REIT No 1(ASX: ARF). As the name might suggest, it’s a real estate investment trust (REIT). It predominately invests in childcare centres but also has some assets in the healthcare property space.

The one factor that Telstra has over Arena REIT is the income yield. Telstra has a trailing grossed-up dividend yield of 10.7% whereas Arena REIT has a distribution yield of 5.5%. So it seems as though Telstra’s yield is nearly twice as large.

However, this is where I believe Arena starts becoming the better pick. Some analysts believe the Telstra dividend may face another cut of around 25% to 16.5 cents per share in 2019 if the telco is to stick to its sustainable dividend payout policy. That would put the Telstra forward grossed-up dividend yield at 8% – much closer to Arena’s.

A dividend is only as reliable as the business’ earnings.

The REIT sector has held up its value quite well over the past few months, with most other shares dropping in value significantly.

In FY18 Arena REIT grew its operating earnings per security (EPS) by 6.5% to 13.1 cents and increased the distribution per security by 6.7% to 12.8 cents.

There were several factors to the strong performance, including an average like for like rent review increase of 2.6%. The majority of rent reviews are fixed or linked to CPI with a ratchet of at least 2.5%.

The REIT’s weighted average lease expiry (WALE) increased to 12.9 years in FY18, which is one of the longest of the REIT sector. Less than 23% of the portfolio’s income is subject to expiry prior to FY2029, only 2% is subject to expiry before FY2023.

Arena REIT has maintained its 100% occupancy, it means it’s getting the most income it can out of its property portfolio.

Foolish takeaway

The FY19 projected full year distribution of 13.5 cents will be a 5.5% increase compared to FY18 thanks to contracted rent increases and the full impact of FY18 development completions.

I think Arena looks in good shape with the gearing dropping from 27.5% in FY17 to 24.7% in FY18. I’m happy that I own a small position considering how it has performed over the past year.

An even better choice for income growth than Arena and Telstra could be one of these reliable ASX dividend shares.

NEW! Top 3 Dividend Bets for 2019

With interest rates likely to stay at rock bottom for months (or YEARS) to come, income-minded investors have nowhere to turn… except dividend shares. That’s why The Motley Fool’s top analysts have just prepared a brand-new report, laying out their top 3 dividend bets for 2019.

Hint: These are 3 shares you’ve probably never come across before.

They’re not the banks. Not Woolies or Wesfarmers or any of the “usual suspects.”

We think these 3 shares offer solid growth prospects over the next 12 months. The first two currently offer fat, fully franked yields. The last is a surprising REIT offering you the benefits of being a landlord with none of the hassle! You’ll discover all three names and codes in “The Motley Fool’s Top 3 Dividend Shares for 2019.”

Even better, your copy is free when you click the link below. Fair warning: This report is brand new and may not be available forever. Click the link below to be among the first investors to get access to this timely, important new research!

The names of these top 3 dividend bets are all included. But you will have to hurry. Depending on demand – and how quickly the share prices of these companies move – we may be forced to remove this report.

Click here to claim your free copy right now!

Related Posts:

  • No Related Posts

Should income investors buy Telstra shares for its 7.5% dividend yield?

Based on the current Telstra Corporation Ltd (ASX: TLS) share price, the telco giant’s shares provide investors with a fully franked 7.5% dividend yield …

Based on the current Telstra Corporation Ltd(ASX: TLS) share price, the telco giant’s shares provide investors with a fully franked 7.5% dividend yield on a trailing basis.

While this is certainly very generous and very tempting in a low interest rate environment, I’m concerned that it could prove to be a dividend yield trap.

Given the tough trading conditions that it is facing, I would be very surprised if Telstra were able to generate enough free cash flow to maintain its 22 cents per share dividend in FY 2019.

Instead, I think that a dividend around 16 cents per share is more likely, which reduces its yield to 5.5%.

Although this yield is still very generous and vastly superior to the All Ordinaries index average dividend yield of 4%, I fear there is a danger that its shares could de-rate lower if the company cuts its dividend to 16 cents per share.

In light of this, I think the prudent thing for investors to do at this point is to hold fire and wait for the release of its half-year results in February. I expect the company will reveal its dividend plans for the year with this release.

In the meantime, I would suggest income investors look at these two dividend shares instead:

Dicker Data Ltd(ASX: DDR)

I think that this computer software and hardware distributor could be a good option for income investors. This year the Dicker Data board intends to increase its dividend to a fully franked 18 cents per share, which equates to a yield of approximately 6.3%.

Rural Funds Group(ASX: RFF)

Rural Funds is an agriculture focused real estate property trust. I believe it is a great alternative due to its growing portfolio of income generating agriculture properties across different geographies and industries. Its shares currently provide a trailing 4.6% dividend.

NEW! Top 3 Dividend Bets for 2019

With interest rates likely to stay at rock bottom for months (or YEARS) to come, income-minded investors have nowhere to turn… except dividend shares. That’s why The Motley Fool’s top analysts have just prepared a brand-new report, laying out their top 3 dividend bets for 2019.

Hint: These are 3 shares you’ve probably never come across before.

They’re not the banks. Not Woolies or Wesfarmers or any of the “usual suspects.”

We think these 3 shares offer solid growth prospects over the next 12 months. The first two currently offer fat, fully franked yields. The last is a surprising REIT offering you the benefits of being a landlord with none of the hassle! You’ll discover all three names and codes in “The Motley Fool’s Top 3 Dividend Shares for 2019.”

Even better, your copy is free when you click the link below. Fair warning: This report is brand new and may not be available forever. Click the link below to be among the first investors to get access to this timely, important new research!

The names of these top 3 dividend bets are all included. But you will have to hurry. Depending on demand – and how quickly the share prices of these companies move – we may be forced to remove this report.

Click here to claim your free copy right now!

Related Posts:

  • No Related Posts

Will the Telstra share price be a market beater in 2019?

Unfortunately for its shareholders, in recent years the Telstra Corporation Ltd (ASX: TLS) share price has underperformed the ASX 200 by some …

Unfortunately for its shareholders, in recent years the Telstra Corporation Ltd(ASX: TLS) share price has underperformed the ASX 200 by some distance.

This underperformance has continued so far this year with the Telstra share price up 2.1% compared to a 3% gain by the benchmark index.

But could things be different as the year goes on? While I think the odds are against Telstra being a market beater this year, there are some catalysts that could make this a reality.

Below I have summarised both a bullish and bearish case:

The bullish case.

Telstra’s shares appear to be priced for underperformance already. At 13.5x estimated FY 2019 earnings and offering a trailing fully franked 7.5% dividend, it looks as though the market is already expecting a disappointing FY 2019 and a cut to its dividend. If Telstra performs better than expected and maintains its 22 cents per share dividend, then I wouldn’t be surprised to see its shares rally higher.

Other potential catalysts for a share price rally include the ACCC approving the TPG Telecom Ltd(ASX: TPM) and Vodafone Australia merger and the Federal government writing down the value of the NBN. The latter could allow the NBN to lower its wholesale prices, leading to improved margins for Telstra.

The bearish case.

While I think that the market has priced in a dividend cut now, if the dividend cut is more severe than expected it could lead to its shares de-rating. As I mentioned here, both Citi and UBS expect a 16 cents per share dividend in FY 2019. If this were to occur then I wouldn’t be surprised to see its shares pull back around 9-10% to $2.65 where they would then offer a 6% dividend yield.

Another potential risk is the ACCC decision on the TPG Telecom-Vodafone Australia merger. If this merger is denied then it could result in even more intense competition in the telco space and put more pressure on Telstra’s margins.

What now?

Time will tell what happens, but at this stage I’m more of a bear than a bull and feel Telstra’s shares are likely to underperform again in 2019.

In light of this, I would suggest income investors skip Telstra and consider bank shares such as Australia and New Zealand Banking Group(ASX: ANZ) or National Australia Bank Ltd(ASX: NAB).

Alternatively, these top dividend shares have been named as buys this month.

NEW! Top 3 Dividend Bets for 2019

With interest rates likely to stay at rock bottom for months (or YEARS) to come, income-minded investors have nowhere to turn… except dividend shares. That’s why The Motley Fool’s top analysts have just prepared a brand-new report, laying out their top 3 dividend bets for 2019.

Hint: These are 3 shares you’ve probably never come across before.

They’re not the banks. Not Woolies or Wesfarmers or any of the “usual suspects.”

We think these 3 shares offer solid growth prospects over the next 12 months. The first two currently offer fat, fully franked yields. The last is a surprising REIT offering you the benefits of being a landlord with none of the hassle! You’ll discover all three names and codes in “The Motley Fool’s Top 3 Dividend Shares for 2019.”

Even better, your copy is free when you click the link below. Fair warning: This report is brand new and may not be available forever. Click the link below to be among the first investors to get access to this timely, important new research!

The names of these top 3 dividend bets are all included. But you will have to hurry. Depending on demand – and how quickly the share prices of these companies move – we may be forced to remove this report.

Click here to claim your free copy right now!

Related Posts:

  • No Related Posts

How NBN Co could save the Telstra share price

Amazingly, NBN Co could save the Telstra Corporation Ltd (ASX: TLS) share price. That’s quite a stunning thought considering it was the introduction …

Amazingly, NBN Co could save the Telstra Corporation Ltd(ASX: TLS) share price.

That’s quite a stunning thought considering it was the introduction of the NBN that has been a major reason why the Telstra share price and earnings have fallen over the past few years.

According to the AFR and Vodafone, the NBN owns a large amount of unused 5G spectrum that could drop the cost of 5G services.

Vodafone chief strategy officer Dan Lloyd said opening up this spectrum would provide “earlier access to 5G, better network performance, lower costs and a more competitive 5G market in Australia.”

The NBN has initially said no. It needs the spectrum to provide its broadband services. But, the government could generate some money if it leases access to the unused portion of the spectrum that Vodafone are referring to. So I wouldn’t rule it out just yet.

5G seems to be the key point to an investment in Telstra, besides the telco’s low share price. Last month Telstra invested $386 million in the 5G spectrum auction to secure 30-80 MHz nationwide. Combined, Telstra now owns 60MHz of contiguous 5G spectrum in all major capital cities and between 50-80 MHz of contiguous 5G spectrum in all regional areas.

It could be argued that within a few years the NBN infrastructure will become materially inferior to the speed which consumers could get using a 5G network. It could be possible to simply deactivate a broadband service and use 5G for all a home’s needs. This is how Telstra could use its scale to attract the most customers and create an unassailable market position.

Foolish takeaway

Telstra is trading at 14x FY19’s estimated earnings with a trailing grossed-up dividend yield of 10.8%. Some investors may be attracted to Telstra at this level, but until I can see how Telstra will price 5G services and what that means for its profit I’m not going to consider buying any shares.

NEW! Top 3 Dividend Bets for 2019

With interest rates likely to stay at rock bottom for months (or YEARS) to come, income-minded investors have nowhere to turn… except dividend shares. That’s why The Motley Fool’s top analysts have just prepared a brand-new report, laying out their top 3 dividend bets for 2019.

Hint: These are 3 shares you’ve probably never come across before.

They’re not the banks. Not Woolies or Wesfarmers or any of the “usual suspects.”

We think these 3 shares offer solid growth prospects over the next 12 months. The first two currently offer fat, fully franked yields. The last is a surprising REIT offering you the benefits of being a landlord with none of the hassle! You’ll discover all three names and codes in “The Motley Fool’s Top 3 Dividend Shares for 2019.”

Even better, your copy is free when you click the link below. Fair warning: This report is brand new and may not be available forever. Click the link below to be among the first investors to get access to this timely, important new research!

The names of these top 3 dividend bets are all included. But you will have to hurry. Depending on demand – and how quickly the share prices of these companies move – we may be forced to remove this report.

Click here to claim your free copy right now!

Related Posts:

  • No Related Posts